Mr. S. Krishnakumar |
In an interview with Anjali Raulgaonkar from Capital Market Publishers, S. Krishnakumar, CIO - Equity, Sundaram MutualFund said, Power and utilities is a space where we are actively pursuing as a theme. Infrastructure construction, developers and capital goods are other sector that have been played in our funds.
Excerpts:
1) The equity markets are turning volatile? What will the key driving factors for markets going ahead?
The equity markets in general are volatile mostly on account of the changing global backdrop. We have entered the phase of monetary divergence with the Federal Reserve (Fed) on a firm rate rise footing and the European Central bank (ECB) on a path of monetary easing. The ECB is joined by select European countries (outside the Eurozone) and the Bank of Japan (BoJ). In all this, India remains relatively in a sweet spot.
The Fed rate rise comes as a big relief for Indian markets; removing a large cloud of uncertainty. In fact, India should positively feed on moderate rate hikes in the US and this is clearly reflective of the Fed's confidence on US growth. And as we all know, better US growth is good for global growth and certainly positive for India.
The government's intention is very clear in its reform efforts and going forward, we are likely to see this translate into more quality spends. This, clubbed with soft commodity prices, an accommodative central bank, contained inflation and rupee stability would translate into increased private sector confidence. The drop in commodity prices have comes as a blessing for Indian companies and their margins. With growth coming back, we see earnings bounce back into the next 12 months.
Softer inflation leading to incremental savings channelled into more attractive equity assets remains a tailwind to the India story.
2) What are the essential traits for the stocks to be in your portfolio?
As a fund house we largely believe in India being a growth market and hence play growth. Growth comes from two streams - emerging business opportunities driven by regulation, reforms, technology and demographics & also through differentiated or niche players in mature sectors. We use a GARP - Growth at reasonable price - approach to investing and valuations broadly.
As for as essential traits for stocks selection, we use the 5S approach - Simple business, Scalable opportunity, Sound promoter/management, sustainable competitive advantage which ensure strong profitability, cash-flows for growth capital and right allocation.
3) How are the market positioned to face global clues?
Indian markets stand out in the Emerging market pack, purely on its macro credentials. This macro strength is visible in the Rupee's resilience that ranks 4th among a pack of 24 Emerging Markets (EM). Being the largest growing economy in the world with inflation containment and fiscal prudence, India will continue to remain differentiated in the EM space. As mentioned earlier, further rate hikes only reflect US strength that is a strong positive for India.
4) 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?
The economy is getting back on track while benefiting from lower inflation and rates. As investors we are positive on cyclical sectors that feed on the economic recovery theme like industrials, engineering & capital goods, transportation and financials. The potential rise in disposable income on the back of softening inflation in urban India and the seventh pay commission largesse will definitely help consumer discretionary sectors like automobile, lifestyle products, durables, retail and entertainment. These represent our positive bias while we remain negative on Pharma, FMCG, Telecom, IT and Metals.
5) What are the opportunities you have derived from the reforms that have happened such as reforms in the coal-auction, mining, etc.
Power and utilities is a space where we are actively pursuing as a theme. Infrastructure construction, developers and capital goods are other sector that have been played in our funds.
6) How often do you re-balance your equity allocation?
Asset allocation between equity and debt in our hybrid funds are a function of the mandates that we run. Within the permissible range as per mandate, a monthly review is done.
7) What would you like to advice to the investors in the current scenario?
Retail investors appear to have as much conviction in the India story as us. Nevertheless, they need constant support and re-iteration during these volatile times. Invest regularly with an asset allocation that is suitable to your needs and risk appetite. Discipline, Patience and Diversification are always key to being successful in long-term wealth creation. After the recent correction, I would recommend investors to also look at a lump sum allocation to equities.
8) Kindly share your investment strategy with us. Are you making any changes to your scheme's portfolio as we witness change in market?
From an up down approach, our portfolios are geared broadly for the economic recovery seen, driven by the thrust on infra spending. An another theme we are playing is on the beneficiaries of the global commodity deflation across different sectors. While one may look at these broader themes, the Indian equity market remains a stock pickers delight with bottom up investing generating alpha for the investors. Our schemes like Select Midcap, Smile, Entertainment Opportunities, Infra and Equity multiplier are clear examples of the same.
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