Investors should not get perturbed by intermittent corrections in the market, leading money managers from Mutual Fund Industry concluded at the Business Standard Fund Cafe held in Mumbai recently. Cement, capital goods and consumption are among a few sectors which are expected to lead the next leg of the rally. Take a look at what top money managers had to say about markets prospects and investment options.
Pick-up in earnings
S Naren, ED& CIO, ICICI Prudential MF believes earnings cycle is yet to play out and it will do so over the next two years. "While there has been reasons, such as GST among others, which are hurting the near-term, the medium-term outlook on earnings is pretty good and that should be a positive," he said. Mahesh Patil, Co-CIO, Birla Sun Life MF also expects earnings to rebound from the second half of this year thanks to demand revival from the rural side, and the lower interest costs for corporate India. "There is good possibility that earnings should rebound from the second half of this year. With macro picture in place, it is consumption which will drive the growth and as capacity utilisation starts to improve you will see capex recovery happen with a lag, let’s say a year or two later," he said.
Sectors to look at
Sunil Singhania, Reliance Capital Global Head-Equities believes domestic economy oriented sectors, be it engineering or cement will do well. He is also positive on metals because of the huge swing a slight increase in prices can bring to operating as well as financial leverage. He also prefers consumption theme because disposable income levels are growing, with a definite propensity to spend more on better products. Patil of Birla Sun Life MF sees opportunities in the banking sector, especially in private banks and NBFCs. Software also looks good to him as a defensive bet. Prashant Jain, meanwhile, is quite optimistic on public and private banks both. "Public banks like many private sector banks have a good deposit base and their cost to deposit is also very competitive and it’s a very sustainable competitive advantage," he said.
Key Risks
The analysts noted that some risks are always there, which get factored in the prices and valuations, while others are hard to predict. "The thing about risks is that the risks which do the most damage are those which you didn’t even know existed. So by definition it is very hard to figure out what they are but ones that we think we already know about or talk about are already reflected in prices and valuation," said Vetri Subramaniam, UTI Mutual Fund Group President & Head-Equity.
Market valuations
Our view is that valuations are not cheap, particularly on price-to-earnings metric and on other metrics they are just about fair value, said Naren of ICICI Prudential MF.
Midcaps vs largecaps
In an environment where interest rates are coming down and domestic growth will pick up, mid-cap earnings will be better than larger companies so probably mid-caps will perform in the longer run but the risk reward at this point and looking at the valuations and also looking at the volatility, mid-caps are probably more vulnerable, said Patil of Birla Sun Life MF. Subramaniam also sees far greater comfort in large-caps than in mid-caps.
On large fund sizes
Prashant Jain, ED & CIO of HDFC MF believes there are no funds in the country that are so large that size becomes a constraint. "For the last three years, the biggest funds have turned in a good performance and we are not yet in a place where funds become very large relative to the market," he said. "People say inflows are large. Yes, but what is the denominator? It’s a $2-trillion market. And we are collecting less than one per cent of the market cap annually, which is not large. To deploy one per cent of capital in a market which is 100 times bigger, where is the challenge?," he added.
SIP route for equity investment
“It’s important for investors to build the asset class over a period of time. A lot of investors have realised this looking at past experiences and are coming into the market in a much more systematic manner, not trying to time it. That’s getting reflected in terms of total SIP book which is seeing inflows of Rs 5,000 crore on a monthly basis and growing,” said Mahesh Patil, Co-CIO, Birla Sun Life MF. Prashant Jain, ED & CIO of HDFC MF echoed the same thought. “SIPs have become a universally accepted way of investing with investors going beyond mutual funds and associating equity with the long term, which is good,” he said.