Current valuations have just reached a 10-year average price-to-earnings ratio of the market and corporate India has now tightened its belt. Ashutosh Bishnoi, acting chief executive officer, L&T Mutual Fund, tells FE's Saikat Neogi that it is the right time for investors to do stock-picking for the medium term. He suggests that investors look at companies with strong business models and visibility of sustained earnings. Edited excerpts:
Do you think Indian investors are sitting on cash and waiting for more positive cues before investing in equities?
In times of uncertainty, retail investors tend to 'fly to safety'. In the Indian context, they have typically moved to high-yielding deposits and gold. Technically, I suppose, you could call them 'cash'. Historically, the retail investor's asset allocation towards equities has been dropping. In the last one year also, their participation has been muted. Now, after market correction and reasonable valuations, we expect participation to increase.
Since one-year forward valuations have come back closer to the average levels of valuations, how are you looking at stock selection and what sectoral advice are you giving to your investors?
The valuations across sectors have factored in most of the negatives in terms of high interest rates, growth expectation and global volatility. The current valuations have just reached the 10-year average PE of the market. At the same time, corporate India has, since the 2008 global financial crisis, learnt to tighten its belt and tried to become more efficient. We believe that this is the time to start considering a stock-picking type of portfolio for the medium term. Companies with strong business models and visibility of sustained earnings through times of economic uncertainty are likely to be available inexpensively in volatile markets. We are likely to find these companies in the domestic consumption and infrastructure sectors.
How are foreign institutional investors (FIIs) looking at India and do you expect them to go overweight in debt in the near and medium term?
India offers a great structural long-term investment opportunity. We expect FIIs to increase their allocation to India once normalcy returns in the euro area. In the new year, we can expect some of the smart money coming in into emerging markets, including India, and that's possibly when you will see some upside. Once FIIs start flowing in and you start expecting better returns, I think that will be a self-fulfilling foretelling and one can expect a better upward move than what most of us are anticipating right now. On the debt side, the FII limits are already full; that could be taken as an indication of their growing appetite for Indian debt.
How do you see the mid- and small-cap segments currently and will they be able to match the returns of some years back?
Currently, this segment offers great value and, over a long-term period, we expect it to deliver superior returns. However, one has to cherry-pick the portfolio here. Mid- and small-cap segments seldom offer across-the-board opportunities.
Do you think L&T MIP—Wealth Builder Fund would offer risk-adjusted returns and serve as an alternative under fixed-income products?
With long-term product performance and highest standards of governance, L&T Mutual Fund is well poised to be an important player in this growing industry.
The fund is an income scheme with a debt exposure of 70-100% and equity exposure can be up to 30%. Fixed income allocation of the scheme could be invested in corporate deposits, commercial paper, government securities, money market and other debt instruments, which aim to generate returns while moderating credit and interest rate risk. The scheme could be suited for those investors who are keen on taking advantage of the interest rate movement and the possible opportunity in the current equity markets.
The L&T MIP—Wealth Builder Fund is an aggressive MIP fund, wherein the fund can take exposure in equity up to 30%.
Through this fund, investors can benefit from both asset classes (debt and equity). We believe both these asset classes offer great opportunity at this time as interest rates have risen and equities are reasonably valued.
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'I made my money by selling too soon.'
Website: http://indianmutualfund.co.cc/
Blog:http://indianmutualfund.wordpress.com/
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