How do you read retail investors' faith in equities during these times?
Flows are difficult to predict and are behavioural in nature. That said, over the last couple of years, the monthly equity systematic investment plan (SIP) numbers have been resilient despite a tough market, which is encouraging. On the other hand, lump-sum investment has slowed. Retail investors are reposing their faith in the Indian economy and are now investing for a longer period through SIP route than before, instilling disciplined investment approach.
What are the average cash levels in your portfolio across schemes? Are you facing any redemption pressures?
We aren’t facing much of redemption pressures, albeit have witnessed continuous growth in SIPs. In the normal course of business, we remain fully invested. However, the high-frequency economic indicators we track are signalling a slowdown, especially in auto sales, industrial activity, credit growth, and government expenditure growth. In that context, we have pruned our exposure to these sectors and have temporarily raised cash levels to the tune of 6 per cent – 12 per cent of net assets, depending on the fund strategy. Meanwhile, we continue to watch for cues from the economic momentum as well as doing channel checks across various segments.
Where do you see the Sensex/Nifty by December 2019-end?
Over the medium-to-long term, we could see annual returns being slightly above the country’s nominal gross domestic product (GDP) growth.
The Reserve Bank of India (RBI) has gone for a fourth straight rate cut. Do you think it's enough to get things moving?
RBI’s move is welcome. However, term premiums over government security (G-Sec) are still high. Where this could change to improve transmission at the broader level is (a) if the small savings rates are also more market-rate linked – as currently they are impacting the flow into deposits for banks and thereby deposit rates, (b) Somewhere an improvement in the confidence level of the system to restart credit flow.
The first one may happen with a lag of quarter or two while the second one is more behavioural in nature. Apart from that, we think the Government can further provide impetus by selectively benefiting low-cost housing, replacing old vehicles or investing in renewable energy. All these measures are important to improve the multiplier impact in the economy and help in overall growth which eventually would boost consumption.
What has been your investment strategy thus far in CY19, and especially since the Budget presentation?
At the start of the year, we identified this as a period that was likely to be dictated more by macro events in the first half of calendar year 2019 (H1CY2019) and earnings delivery in the second half. In that context, this theme has panned out broadly well with macro events continuing to keep markets
volatile. Earnings delivery has been restricted to a few sectors and we have mainly focused our portfolios towards these areas through the year and continue to do the same.
What sectors do you see doing particularly well over the next 6 - 12 months?
We are currently overweight on private sector banks, insurance, consumer staples, cement, utilities sectors and lot more being bottom-up stock picking. Our focus has been to identify sectors / companies that can grow earnings without raising incremental debt or equity or are significantly leveraged.
With the festive season approaching, do you see a turnaround for auto and FMCG companies? Are they a contrarian bet from a 12-24 month perspective?
If you see the recent quarterly numbers, consumer discretionary slowdown has not been a very broad-based. High ticket consumption backed by leveraged consumption, however, has seen some moderation and that could take some time to recover. It is difficult to say when or what could lead to improvement, but there is hope for a turnaround during the festive season. The improvement in the monsoon coverage and some of the recent steps by the Government and the RBI towards improving funding availability could help margins. Some counter-cyclical measures, if brought in by the Government, could help in demand recovery; else one will have to wait for the underlying economic activity cycle to start kicking back.