In an interview with Anjali Raulgaonkar from Capital Market Publishers, Nilesh Shetty, Associate Fund Manager-Equity, Quantum AMC, said, One can expect some announcements to kick start the consumption cycle including possible rejig in tax slabs or increase in deductions to leave more purchasing power with the tax payers.
Mr. Nilesh Shetty
1) What will the key driving factors for markets going ahead? How are your funds positioned in the current market conditions?
Demonitisation has stalled the uptick in consumption cycle. Private Capex remains weak. Revival of both will be keen watched. Corporate earnings have remained weak for the last three years we remain slightly cautious of the near-term macro and believe there could be downside risks to GDP estimate. The fund strategy remains stock specific and we continue to focus on the managements building the businesses for the long term.
2) What are your expectations from Union Budget 2017-18?
Consumer discretionary spend had collapsed post Demonitisation and still remains below normal. One can expect some announcements to kick start the consumption cycle including possible rejig in tax slabs or increase in deductions to leave more purchasing power with the tax payers. Rural India was particularly badly hit after Demonitisation and one can expect some measures specifically targeted to address rural discontent. Relaxation of FRBM norms is likely to kick start the consumption cycle.
A series of important state elections are scheduled after the budget. There is a risk that the Government may resort to populist policies to garner votes. Any significant populist tilt with weak economic basis may not be perceived favorably. In addition, one of the commitments of the BJP government pre-polls has been to simplify the tax structure as well as administration. However very little has been seen so far. One hopes some movement towards simplifying the tax structure is observed. Timelines for Implementation of GST will be keenly watched
3) Has the change in government proved beneficial to economy so far? How?
There is very little evidence of corruption at the top level which is the biggest positive of this government which remains the biggest positive of this government. There has been some evidence of simplification of laws but by and large a lot needs to be done
4) How do you perceive the government's demonetization move? What are negative and positive implications?
Demonitisation has been a very poorly conceived and executed plan. Looking at the economic costs involved with loss of productivity, lower revenues, loss of taxes, and stalling of the consumption cycle, the payoffs could never justify whatever the government was trying to achieve in terms of targeting black money. One may see some reversal of underreporting by the informal sector but by and large the negatives still far outweigh the positives.
5) What are the essential traits for the stocks to be in your portfolio?
We follow a value style of investing. Our strategy remains to buy good stocks at reasonable valuations to generate sustainable long term returns. We are purely bottom up stock pickers and just focus on long term fundamentals while trying to value companies. We have a predetermined Buy and Sell limit for each stock actively covered by our research team. The limits are decided based on sustainable cash flow generating ability of a company and its long term valuation bands. Once a stock hits our buy limit it finds its way into our portfolio and once it hits our sell limit it exits our portfolio.
6) How are the market positioned to face global clues? Share your views on global economies and their impact on India?
Global events like Brexit and Trump Winning the US elections are indicators that we may over the next few years see a world which is a lot more insular and protectionist in policymaking. One may also see economic costs being imposed on businesses which thrive on the free movement of goods and labour. Fortunately for India it still remains a domestic story driven by the Indian consumer. India should be one of the least impacted countries if there are significant barriers imposed on global trade.
7) Is India still an attractive investment destination?
India remains a long term structural story. We have some great companies run by excellent managements who are building businesses for the long term. Near term there might be some issues with weak corporate performance but we believe over the next five years there could be decent upside from current levels. We believe Indian equities as an asset class will continue to draw long term patient capital from abroad.
8) Which sectors you are considering attractive from investment point of view and why and which sectors you are avoiding and why? What kind of stocks never enters your portfolio?
We have a stock specific strategy and are sector agnostic. Currently consumer discretionary led by two wheelers have larger weight in the portfolio followed by power and gas utilities purely due to attractive valuations. We do not have any allocation to consumer staples purely due to expensive valuations. Companies with weak corporate governance and a history of treating minority shareholders poorly do not come into our portfolio.
9) How often do you re-balance your equity allocation?
We are never in a hurry to re-balance or keep changing our portfolio. Our strategy is to buy good companies at comfortable valuations and wait patiently for value to emerge. We sell only when the stock becomes expensive and hits our sell limit. Ignoring market froth has allowed us to generate steady returns over the long term. We don't mind holding on a company for long time. The best investors have held good companies over decades to generate superior returns.
10) Kindly share your investment strategy with us. Are you making any changes to your scheme's portfolio as we witness change in market?
We are a boring long only value fund. We tend to have very low churn. We focus on individual companies and any stock if its hits our Buy limit will be part of the portfolio irrespective of market levels. Similarly, we exit companies if they hit our sell limit irrespective of market levels. We do take any view on markets and avoid making portfolio changes based on the same.
11) What would you like to advice to the investors in the current scenario? What strategy would you suggest the investor to adopt at this point of time in the market?
Near term there could be some turbulence related to rising inflation and weak corporate performance. However, India is a long term structural story, hence any significant correction should be used a great buying opportunity. Timing the market is tough hence a sustained allocation to equities via SIP is best advised.