Ravi Gopalakrishnan, CIO-Equity, Sundaram Asset Management Company (AMC), has a long track record of managing money in equity schemes of mutual funds. He headed the equities fund management team at Canara Robeco AMC for approximately six years. Prior to that he had spent three years with Pramerica AMC (subsequently renamed PGIM AMC) heading the equity fund management team.
In 2019, Gopalakrishnan joined Principal AMC to head the fund house’s equities team. Since 2021 when Sundaram Mutual Fund acquired Principal Mutual Fund, Gopalakrishnan has been heading the combined firm’s equity funds, as the chief investment officer (CIO) – equity.
Stock markets have been on a roller-coaster ride in CY2022. Equities had started to fall on the back of possible expectation of the US raising interest rates. But when the Russia-Ukraine crisis started, equity markets fell sharply. Then, in June, the benchmark market index CNX Nifty 50 reached the lowest point in CY2022, only to bounce back now to end the day at 17,944.
As market experts predict the next path for equities, mutual funds have started to launch new products with gusto, after the industry’s own roadblock to launch new funds was lifted on July 1. Sundaram Mutual Fund launched a new scheme called Sundaram Flexi Cap Fund. The new fund offering opened on August 16, 2022 and closes on August 30, 2022.
In a chat with Moneycontrol on the sidelines of the launch of its new scheme, Ravi Gopalakrishnan talks about why he likes certain sectors and what investors must do in these volatile times. Edited excerpts:
Foreign institutional investors (FIIs) have been consistent sellers for the most part of CY2022. However, domestic investors are actively entering the equities sector, though there are initial signs of fatigue in the last one month. How do you interpret this?
Generally, domestic investors also sell when FIIs sell. This is the first time I have seen domestic investors buying into equities when FIIs are selling, and that speaks for the investors’ maturity.
The FIIs are selling Indian equities because of rising inflation, rising global interest rates, and Indian valuations being expensive compared to China and Brazil. The FIIs want to book some profits, and India is a market where they are making money, while in other markets, they are losing money.
But domestic investors are confident on the Indian economy. The Indian economy is expected to expand three times in the next 15 years. When there is a long-term growth potential, there is a strong case for staying invested in Indian equities. More investors are understanding this opportunity, despite the interim volatility in the stock market.
How to do you see the equity markets now?
We are not completely out of the woods. Rising geo-political tensions lead to polarisation of the world. It is a difficult phase in which global trade suffers. The movement of goods and services become difficult. Also, capital flows from one market to another get obstructed due to various roadblocks, including sanctions. However, if you look at India, our neutral stance towards nearly all the countries helps. It is therefore easier for Indians to invest abroad as well foreigners to allocate their capital to India without the risk of any sanctions. Indian companies can also do business in most parts of the world. That puts Indian corporates in a better position to expand their business and report better earnings. Despite this, inflation is still not under control, and interest rates are expected to rise. Hence, volatility will remain.
There are some pockets where valuations have become reasonable. But I would refrain from generalising. Despite fall in prices of some stocks of companies that got listed in the last few months, they are still expensive. They are not necessarily bad businesses. Just that the valuations of these stocks are high and there may be time correction (a situation of sideways movement in prices for a prolonged period of time) in them.
What are the investment opportunities in the equity markets? Where will earnings growth come from?
Investment and consumption are two key segments that will throw up many opportunities to equity investors. Within these, we see banking and financial services, manufacturing, consumer discretionary along with other segments, offer good potential. Each sector will have different growth drivers. Broad macro-economic growth, rural economy coming out of woods, rising rural incomes are some of the positives. Raw material prices are going down and they may pull down the prices of finished products. All these factors ultimately, will revive demand.
What are the key risks now that investors should keep in mind?
The war situation in Russia-Ukraine is not over. If the war situation worsens, then it will be a big risk. Oil prices are important and it impacts the Indian economy. If the economy loses traction and does not grow as anticipated, then there could be disappointment.
The equity fund management team at Sundaram MF has seen many changes in the recent past. Does that impact the investment process?
We have six fund managers supported by research analysts in Chennai and Mumbai. We are in the process of recruiting more people on the research side. Both Sundaram AMC and Principal AMC have similar management philosophies and processes. We have put in place a six-pillar framework for the equity investment process — business dynamics, operating matrix, profitability, quality of growth, capital allocation and valuation, to ensure that there are no gaps and we get consistent outcomes.
Our research process and investment framework is all set, and we hope things will be a lot more consistent from the outcome perspective.
What is your one big advice to investors?
Significant growth prospects of India make equities a place to be in for investors. However, there will be a few volatile phases, and hence, the long-term approach helps investors. Retail investors need to have an investment horizon of at least three to five years, as it takes that much time for a complete cycle to play out.
Investors should be disciplined. Financial investing should be more of a habit, rather than a fashion. You need to invest no matter what kind of market you are in. That is how you create sustainable wealth in the long term. If you invest only when the markets are fashionable or things are rosy, there is going to be disappointment.