In an interview with Anjali Raulgaonkar from Capital Market Publishers, Shiv Chanani, Equity Fund Manager, Sundaram Mutual Fund said, Though inflation has picked up from the low, we expect it to remain range-bound on account of structural measures taken by both RBI as well as the government. Furthermore, a good monsoon should also help in keeping food inflation under check.
Mr. Shiv Chanani
1. The equity markets are turning volatile? What will the key driving factors for markets going ahead?
From a domestic point of view, key factors to watch out would be a) progress of monsoons; b) addressing bank NPL issue and c) continued public investment. From global perspective, one would need to monitor the progress of Brexit - its impact on global trade, global growth and eventual response of monetary authorities across the world.
2. Has the change in government proved beneficial to economy so far? How?
The new government has chosen to invest substantial time and resources in getting the systems and process right rather than embarking on massive fiscal expansion. We believe this has been a prudent move keeping in mind the fiscal constraints as also laying the foundation for a strong steady growth for the future.
3. What are the essential traits for the stocks to be in your portfolio?
Stocks are selected from a medium term horizon based on our 5S methodology. The 5S pertains to (i) Simple Business (ii) Scalable Opportunities (iii) Sound Management (iv) Sustainable competitive advantages and (v) Steady cash flows. The portfolio largely deploys buy and hold strategy allowing the investee companies to realize their full potential over the horizon.
4. How are the market positioned to face global clues? Share your views on global economies and their impact on India?
Markets have clearly overcome the initial shock of Brexit event. However, these are still early days since everyone is trying to figure out how the event will eventually play out. This adds uncertainty to the environment. However, as we look at the global scenario, clearly India is easily one of the best placed economies with GDP growth in excess of 7%, stable currency and inflation under control. Having said that, Indian economy will certainly be impacted in case there is a significant slowdown in the global growth both in terms of trade as well as investment flows.
5. How is India Inc's earnings picture getting affected by the collapse in commodities? Is it possible to scale it?
India is a net consumer of commodities. Hence, a decline in commodity prices have helped most of the companies which have been reflected in higher margins of the manufacturing sector in FY16. However, the collapse in commodities did had a collateral damage on the metals company, which is one of the largest component of bank NPLs currently.
6. 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?
Currently, we are in an environment where global outlook is marred with uncertainty but there is a clear pick up in the domestic economy. Hence, at this point of time, we prefer themes which will benefit on account of domestic growth such rural, consumption, and capital investment. Themes we would like to avoid are the ones where export component would be higher as well as commodities. Stocks, which do not fit our 5S investment philosophy, will not form part of the portfolio.
7. Has the inflation started to rise again? What will be the RBI's move in coming policy amidst rising CPI?
Though inflation has picked up from the low, we expect it to remain range-bound on account of structural measures taken by both RBI as well as the government. Furthermore, a good monsoon should also help in keeping food inflation under check.
8. How often do you re-balance your equity allocation?
Portfolio allocation is a dynamic process dependent on number of variables such as market movements, company specific development, fund flows, etc.
9. Kindly share your investment strategy with us. Are you making any changes to your scheme's portfolio as we witness change in market?
As stated above, our portfolios are now more aligned with domestic plays and we are preferring to go underweight on sectors with global linkages.
10. What would you like to advice to the investors in the current scenario?
Investors should not get un-nerved by volatility in the markets as this is going to be the new norm. It is necessary to keep a medium to long term horizon while investing in equities. Given the strong outlook for Indian economy, equities, as an asset class is highly likely to fulfill its promise of wealth creation.
11. When and How do you see rural consumption recovering?
Given the prognosis of a good monsoon, we expect this to translate into money in the hands of the consumers in the second half of current fiscal year. Consequently, festive season of Dussehra and Diwali may truly reflect the upswing in rural consumption.