MUTUAL FUNDS

We Remain Bullish On the Banking Companies<
08-Jan-13   11:37 Hrs IST

Mr.Nilesh Shetty
Infrastructure remains an attractive opportunity in India but corporate governance has been a crucial issue with companies in this space. A key focus area for investors should be ensuring that they are invested in companies with clean corporate governance practices. says Nilesh Shetty, Associate Fund Manager (Equity) at Quantum Asset Management Company Private Limited.

We at Capital Market interacted with Nilesh Shetty to now the outlook on equity markets for the year 2013.

Excerpts:

  1. Year 2012 has been good for the markets, including India. How long into 2013 can we carry this optimism, given the way the global economic and political landscape is shaping?
  2. No doubt, 2012 has exceeded expectations one had of possible returns that one could expect from equities given the economic and political environment. We remain slightly cautious about 2013 , given, the already sizeable run up in equities, 2013 may not be as great a year as 2012, where valuation were a lot more reasonable. However, we remain bullish on Indian markets for a slightly longer term and believe Indian equities will continue do well.

  3. India received good inflow from FIIs in 2012. Do you think India will continue to receive such inflows?
  4. India has traditionally been under owned in the International Investment basket but we are seeing a gradual increase in ownership levels driving flows into India, which is unlikely to change over the next few years.

  5. What is your outlook for 2013? Which sectors do you expect to benefit in 2013?
  6. Financials remain the largest weight in the portfolio followed by Consumer discretionary; giving our sense of where we think value is at the moment.

  7. Where do you see Sensex by the end of 2013?
  8. We are bottom up investors and avoid taking a call on the Index value. Having said that we remain bullish on the long term earnings growth of companies in broad indices and believe the Index levels would reflect that trend.

  9. Banking sector has sprung back sharply in 2012, compared to negative returns in 2011? Moreover, MF industry's exposure to bank shares has been over 20% of the industry's total equity AUM? What's you outlook on banking sector moving into 2013?
  10. Given financials remain the largest weight right now in our portfolio; we remain bullish on the banking companies.

  11. In India, consumption theme has done well over the past couple of years. Will the trend continue in 2013?
  12. We like the Indian consumption story; however we have struggled with valuation in the space and currently have zero exposure to this theme.

  13. Do you subscribe to the view that a change in the business cycle will improve the performance of infrastructure funds? What would you advise investors viz their holdings in infrastructure funds?
  14. Infrastructure remains an attractive opportunity in India but corporate governance has been a crucial issue with companies in this space. A key focus area for investors should be ensuring that they are invested in companies with clean corporate governance practices.

  15. Going by the mutual fund folio closures seen in the recent past, do you think retail investors are still doubtful of how the markets may pan out? Do you expect active retail participation in 2013 or will it be another year of fence sitters?

Given that traditionally mutual funds have been miss-sold to investors, credibility of the mutual fund industry is fairly low, reflecting in consistent decline in fresh inflows to equity mutual funds. Typical MF industry behavior has been to raise the most money where the markets have been at elevated levels, there is no reason to believe this time it would be different.

9) What reforms you expect for curtailing fiscal deficit?

Major reforms on subsidy are highly unlikely given that we are getting closer to the election year. Key reforms like GST and Direct tax code have been pending for a while. We remain unsure about the time for implementation of these reforms.

10) Investment in 2013: Gold, real estate, debt instruments or equities?

If the flows continue, then equity will continue to outperform.

11) What would be your advice to investors for the forthcoming year?

It's important not to repeat the mistakes of 2005-2007, when most of high flying stocks with extremely weak business models got undone when risk got reprised post the global financial crisis. Instead of chasing returns, the focus should be to ensure you to invest in solid companies with proven track record over many years and strong corporate governance standards.

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