Ms. BekxyKuriakose | In an interview with Anjali Raulgaonkar from Capital Market Publishers, BekxyKuriakose, Head - Fixed Income, Principal Mutual Fund said, Stick a to balanced asset allocation in various categories of debt funds while allocating to debt funds. In the current environment our top picks are Low Duration and Short Term funds with a topping of Corporate bond and credit Risk funds. Excerpts: - What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why? What will the key driving factors for yields?
Over the last six months yields have moved sharply across various asset classes be it money market, corporate bonds or gilts. This is due to a variety of factors which are well known including the sharp rise in oil prices, rise in US treasury yields and Fed moving to hike path and supply concerns of local govt debt. Given this turn of events and recent FPI selloff in debt markets we see increasing likelihood that RBI may think of hiking rates and turning hawkish. GDP data to be released by end of month would be a key factor as well. Market would also takes cues from RBI's OMO announcements. In the near to mid-term, if OMOs are regularly announced it should be positive for bond markets and we should see yields stabilizing with downward bias even if RBI hikes key rates. - What is your strategy for short term funds? What is your exposure to long term funds and why?
Our Cash management fund and low duration fund invest primarily in money market instruments and short bonds as per investment objectives and SEBI guidelines for each of the categories. In Short Term Fund category we have the Principal Short Term Debt Fund. In the current market scenario we are keeping the portfolio average maturity in a modest range of 1.3-1.8 yrs with 90% plus exposure to good quality well rated short to medium term corporate bonds and money market instruments. A small exposure to short gilts is also taken as we see value in this segment with spreads in excess of 170 bps over repo. - Have you made any changes in your funds after the Union Budget 2018-19? What and Why?
Being actively managed debt funds, portfolio strategy and composition is reviewed on a daily basis. Post Budget there has been a wide range of impactful events both domestic and international and we have fine-tuned our portfolios in lines with changes in our view. - What is your advice to the investors?
Stick a to balanced asset allocation in various categories of debt funds while allocating to debt funds. In the current environment our top picks are Low Duration and Short Term funds with a topping of Corporate bond and credit Risk funds.
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Mr. Rajat Jain | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Rajat Jain CIO, Principal Mutual Fund said, Diversification is important, also clarity on goals and time-period of holding. If they are in place, then the investor would not panic. Excerpts: - Equity markets are already up. Is there more room to grow? How are you approaching market right now? What is your future outlook for the market?
The bottom up picture for the companies is looking better as consumer demand is strong. This has been shown by strong volume growth numbers for passenger vehicles, two wheelers, paints, consumer durables etc. Also, while spends in infrastructure especially roads and railways has been strong, we are seeing increased strength in industrial capex even though it is quite sporadic yet. Hence while the bottom up scenario is looking up which will reflect in the earnings the macroeconomic situation has deteriorated. Partly it is due to the higher oil process which will impact the current account deficit, inflation and potentially the fiscal deficit. In addition, potentially higher spends by both union and state governments and moderate growth in tax revenue may keep fiscal deficit under pressure. Besides, political news flowahead of general elections next year also would be heavy. In such a situation, the large cap stocks should do well this year. However, in the next 2-3 years select midcaps should show fair earnings growth and should do well as a result. - What is your investment space? Any stock specific traits which makes it part of your portfolio? What?
We believe that stock selection combined with disciplined portfolio construction is the key to outperformance. We believe that companies with improving earnings, having a competitive position in their industrywith management having good execution abilities and acceptable corporate governance standards do well. Our analysts and fund managers study companies' bottom up and focus on identifying companies which meet these criteria's. - What is your say on thematic funds? What would you suggest the investors investing in this category (thematic funds)?
We think that for the average investor, having exposure to a diversified equity, midcap fund and potentially a large cap fund would cover most of the needs as far as equity is concerned. He may also look at Balanced fund as that would give him a blend of equity and debt where rebalancing of the portfolio does not include any tax cost for the investor. On top of this, if the investor wants he can look at thematic funds but as I said, for most investors the plain vanilla funds would have covered most of his/her needs. Also in case of thematic funds, the investor has to be agile as the rational for the theme may not last long. Also, these funds can be more volatile than diversified fund. - What kind of stocks you avoid, why?
These would be companies where there are serious questions about their corporate governance and their quality of financial reporting. Also companies which do not have meaningful position in their industry segment as these would always be price takers and only do well in a very limited time period when the tail winds are in their favor. 5. How frequently you churn your portfolio and Why? Latest made changes in portfolio? Our churn is fairly low and the average holding period of a stock in the portfolio would be around 2 years. However, if we had bought a stock for a fundamental reason and if the market price moves sharply we do takesome profit in such situations. Usually we hold the stock so long aswe think that the basic thesis in the company has not changed. And it would be able to grow as expected. 6. Given the dynamic economic and political situation, how can investors minimize their risk and maximize their returns? Diversification is important, also clarity on goals and time period of holding. If they are in place, then the investor would not panic and take incorrect investment decisions which can hurt his/her portfolio performance. 7. What is your outlook on inflation?
We think inflation could vary in the second half of the year. Of course oil prices & MSP announcements would be key to watch out for.
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Mr. Nilesh Shetty | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Nilesh Shetty, Associate Fund Manager, Equity, Quantum Mutual Fund said, Concentrated bets on a theme increases the investors risk. Actual returns may or may not justify the increased risk. Diversified equity funds are much better suited for retail investors. Excerpts: - Equity markets are already up. Is there more room to grow? How are you approaching market right now? What is your future outlook for the market?
Significant increase in share prices over the last few years devoid of any earnings growth has made valuations across most companies expensive. Rising global liquidity lowered risk aversion. We may just be entering a phase where global liquidity recedes making valuations a lot more reasonable. Our sense is downside risks are high at the current moment and investors need to be cautious. We have seen some of our portfolio stocks breaching our sell limits forcing us to sell them raising cash levels in the fund. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. - What is your investment space? Any stock specific traits which makes it part of your portfolio? What?
We have a liquidity filter of at least $1 mn daily trading volume in the stocks that we own; apart from that we do have any market capitalization or sector bias. We have a predetermined Buy and Sell limit for each stock actively covered by our research team. The limits are decided based on sustainable cash flow generating ability of a company and its long term valuation bands. Once a stock hits our buy limit it finds its way into our portfolio and once it hits our sell limit it exits our portfolio. - What is your say on thematic funds? What would you suggest the investors investing in this category (thematic funds)?
Concentrated bets on a theme increases the investors risk. Actual returns may or may not justify the increased risk. Diversified equity funds are much better suited for retail investors. - What kind of stocks you avoid, why?
Companies with weak corporate governance and a history of treating minority shareholders poorly do not come into our portfolio. - How frequently you churn your portfolio and Why? Latest made changes in portfolio?
We do not churn the portfolio that often. Our typical churn ratio has been ~20%. We have reduced positions/ sold out of Oil marketing companies as well as some other selective names as valuations turned very expensive. We have increased weight in some Pharma stocks and Information technology stocks in FY18. These are good companies with great managements facing some near term headwinds, but may prove to be winners in the next five years. - Given the dynamic economic and political situation, how can investors minimize their risk and maximize their returns?
It's extremely difficult to time markets. SIPs remain the best avenue for retail investors to invest in equity markets. The long term India story remains extremely strong despite near term macro concerns. Rupee cost averaging via SIPs remains the best investment option in the current environment.
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Mr. Pankaj Pathak | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Pankaj Pathak, Fund Manager, Fixed Income, Quantum Mutual Fund said, In view of the deteriorating macro indicators and risks emanating from global developments, we cannot rule out a pre-emptive rate hike by RBI in August policy meet and may be one more in this calendar year. Excerpts: 1. What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why? What will the key driving factors for yields? Indian Bond yields have moved up very sharply in last 10 months. The yield on 10-year government bond rose from 6.4% in June 2017 to close to 7.9% now. The primary reason for this up move was a sharp turn in the domestic macroeconomic cycle, unfavorable global markets and demand supply imbalance caused by tepid demand from PSU banks. In the last two months the government and the RBI announced series of measures from reducing the government's borrowing program to lowering the inflation projections and increasing debt investment limits for foreign investors to comfort the market. But it failed to reboot the investors' sentiment. Inflation, fiscal position, external balances all are showing signs of deterioration. The Brent crude oil price is now at $80 per barrel. As India is big importer of crude oil, rising prices will increase the imports bill and will also add to inflation trajectory. While macros are deteriorating, global yields are also on upward march. The 10-year US treasury yield has crossed the 3% physiological level which was last seen in 2013. The reversal in easy money policy in developed has made the emerging market (EM) debt and currencies less favorable. In view of the deteriorating macro indicators and risks emanating from global developments, we cannot rule out a pre-emptive rate hike by RBI in August policy meet and may be one more in this calendar year. But we do not expect bond yields, especially on the front end of the curve (1- 4 year maturity), to rise significantly from here as current spreads reasonably compensate for the inflationary risks. With inflation at 4.5%; Repo rate at 6.0%; a 3 year government bond is trading at 7.7% and a 3 year AAA PSU issuer has to borrow at 8.5%. Going ahead, market will closely watch the extent of MSP increases for the Kharif crops, movement in crude oil price and global yields. 2. What is your strategy for short term funds? What is your exposure to long term funds and why? For fixed income allocation, we offer Quantum Dynamic Bond Fund (QDBF) which has flexibility to change the portfolio characteristics (within the investment policy framework) as per interest rate scenario. The QDBF invests only in government and top rated PSU securities .By its design the fund can take a form of long term debt fund or short term debt fund depending on the interest rate view. Our endeavor is to manage the interest rate risk on behalf of the investors so that they don't need to change their fixed income allocation when interest rate cycle changes. We continue to maintain our cautious stance on rates with an eye of various risks to inflation path and external balances. But on the same time we also acknowledge that valuations have turned very attractive from historical spreads prospective. The recent sell off in the short term bonds seems overdone and at current levels the 1-4 years maturity bonds offer very attractive accrual yield. The Quantum Dynamic Bond Fund is positioned in the front end of the curve (upto 4 years maturity government and PSU securities) with a neutral rate outlook. 3. Have you made any changes in your funds after the Union Budget 2018-19? What and Why? After the government raised its fiscal deficit target in the Union Budget for FY19, we reduced the maturity profile of our portfolio. In order to address the demand supply mismatch, government reduced the borrowing program later on and also lowered the maturity profile of its borrowings. But given the sharp rise in crude oil prices and INR depreciation in last two months, we maintained our low duration position to protect the portfolio from any external shocks. 4. What is your advice to the investors? Investing in Bond funds does require some greater understanding on the part of investors in terms of understanding its risk / return profile as well as the need to invest for 2-3 years to ride out the volatility. Bonds funds are not Fixed Deposits and are subject to volatility in short term. We advise investors to have a longer time frame if they invest in bond funds and should also consider the possibility of capital losses in the short time horizon. Given the current scenario, we advise investors to remain conservative in their returns expectations from bond funds and avoid long term debt funds. Alternatively, short term debt funds or dynamic bond funds offer an attractive investment route for debt allocation if held for next 2-3 years.
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Mr. Sonam Udasi | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Sonam Udasi, fund manager, Tata Mutual Fund said, If the rupee is going up slowly or crude inches up slowly, it is less of a worry. But if there is a shock, there is a problem. At the moment, this is fine. It is a palatable risk. Excerpts: Should equity investors worry about rupee depreciation and rising crude prices, or just ignore them? There is a concern. Rupee stability is always good from a foreign investment standpoint. Oil brings inflation into the economy. So, from those perspectives, there is an overhang on the equity market. That said, there have been times when some bit of inflation has been good for the economy. For instance, the consumer sector tends to do better because nobody questions the pricing power. Even in corporate and retail lending, prices sort of go up. That is good for the spread. We must see whether crude oil sustains or remains high for a very long time. If there is too much gyration in crude oil price, then it is a problem. If the rupee is going up slowly or crude inches up slowly, it is less of a worry. But if there is a shock, there is a problem. At the moment, this is fine. It is a palatable risk. About 2-3 months back just after December quarter earnings were out, valuations had looked better. With the March quarter numbers still coming out, does your opinion of valuation change? Even this time around, barring the corporate bank results, the trend in the consumer and auto side has been very good. Yes, some corporate banks have reported losses. But we must look at the positives as well. Large companies showing double-digit EBITDA are good numbers to look at. I expect the numbers of the energy basket to be not too bad. To my mind, all this will add to making valuations cheaper. As a fund manager, if you ask me, I am seeing more opportunities for creating wealth. These opportunities will take 2-3 years' time. You manage the nearly Rs 1,000-crore Tata India Consumer Fund. What is your take on consumption stocks? India is a consumer-driven economy. As per capita moves up, then logically your ability to consume different things appears and you also tend to focus on wealth creation. Once your basic needs are met, you either want to buy the next home or set up a business or create financial wealth for yourself. As the fund manager of the Tata India Pharma & Healthcare Fund, and the Tata Digital India Fund, where are you seeing value? Comparatively, the IT sector looks a little better. There are few reasons why I am saying so. One, a few of the IT firms own 8-10% of their market value in cash. This allows them to give you buybacks and or dividends. These provide a cushion to valuation. Some of the IT midcap names have the potential to change their earnings trajectory. In the same vein, I am quite hopeful of the performance of the midcappharma and healthcare sectors. In pharma, there are many compliance issues and then there is Modicare, there is Trumpcare etc. Resources stocks have in the recent past done very well. How are you positioning your Tata Resources & Energy Fund? I think as we get to housing for all, cement is one space that should do well. Maybe look at agro-chemicals space and specialty chemicals sector because of the China factor. That said, this is a more tactical fund. Your largest fund is the Tata Equity PE Fund. Which sectors are you buying and which are the ones that you are less bullish about? IT, energy, some holding companies and some BFSI names and chemical stocks are looking good. But for me, PE (price/earnings) valuation is just a starting point. I am looking at compounding machines. In that context, we are overweight on automobile stocks, on media, we are underweight on pharma etc.
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Mr. Rupesh Patel | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Rupesh Patel, Fund Manager, Tata Asset Managementsaid, Igenerally desist from investing in companies which, in the past have shown scant regard for minority share holders' interest and the ones which have a history of bad capital allocations. Excerpts: 1. Equity markets are already up. Is there more room to grow? How are you approaching market right now? Like most of emerging markets, Indian equity markets have delivered stellar returns in CY'17. Those returns came on the back of improving macro as reflected in lower current account deficit, benign outlook on inflation and interest rates and soft crude prices. Lot of those macro tail winds seem to be normalizing. Further, on the domestic front, lot of volatility is expected on account of important state elections over next few months. In such an environment, stock performances would be a function of earnings visibility. We continue to maintain our positive stance on construction companies, private sector banks and consumer facing businesses. 2. What is your investment space? Any stock specific traits which makes it part of your portfolio? What? In terms of our investment universe, we broadly focus on two sets of companies. First would be companies which can compound their earnings over a long period of time, are efficient users of capital, run by decent managements and have innate strengths in their business models. These form the core of our portfolio. Second set is of opportunities, which are more tactical in nature, exist in market due to stock specific/industry specific/market specific developments and makes sense to buy at certain price. 3. What kind of stocks you avoid, why? In investing you never say never. However, I generally desist from investing in companies which, in the past have shown scant regard for minority share holders' interest and the ones which have a history of bad capital allocations. 4. Have you made any changes in your funds after the Union Budget 2018-19? What and Why? We keep evaluating opportunities based on the intrinsic values of the businesses and prices at which they are available in the market. Changes to portfolio are often done to capture a relatively better risk reward opportunity as compared to our existing holdings. Thus announcements in the budget have not led to any specific changes in the portfolio and our core portfolio holdings have continued to remain same. 5. What will be your advice to investors? Equity is a volatile asset class and has delivered superior tax adjusted returns over longer periods. However, to benefit from the same, one has to remain invested through the volatile phases. Hence, investors should not get too much worried about events which may have near term impact. We believe, India offers a long term growth opportunity on account of its demographic profile, rising per capita incomes, increasing urbanization and shift from unorganized to organized players. Hence, equity market corrections can be considered as good opportunities by investors to increase their equity exposures.
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Mr.Murthy Nagarajan | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Murthy Nagarajan, Head Fixed Income,Tata Asset Management said,In short-term funds, we focus on regular accruals and run a low duration strategy. On long term funds, we focus on active duration management. Excerpts: 1.???????? What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why? What will the key driving factors for yields? We have a dovish policy bias because CPI is tracking 50bps lower than RBI's February policy projections and growth is on recovery path. We expect RBI to take cognizance of lower CPI, correction in base metals and other commodities except Brent and still negative output gap, in its upcoming monetary policy on April 5, 2018. Government had over-delivered on making the demand-supply dynamics favorable, this has led to a downward shift from 7.40%-7.80% earlier to 7.00%-7.50% (Currently trading at 7.30% post H1-2019 borrowing calendar announcement). Recent comments in media regarding FPI limit hike are giving mixed signals. Now that government has taken care of demand-supply balance, we expect RBI to be cautious in increasing the FPI limit (may not do so at all in April Policy). However, a gradual (slower than earlier envisaged) road-map for FPI limit hike cannot be ruled out. 2.???????? What is your strategy for short term funds? What is your exposure to long term funds and why? In short-term funds, we focus on regular accruals and run a low duration strategy. On long term funds, we focus on active duration management.? 3.???????? Have you made any changes in your funds after the Union Budget 2018-19? What and Why? Borrowing program and fiscal deficit were on higher side in the union budget. Fiscal slippage is never good for fixed income market. Further, the minimum support price (MSP) hike announced in budget was inflationary. Exact impact of MSP hike is difficult to envisage at current juncture but estimates vary from marginal to 90bps. We had reduced duration post budget and continued with low duration strategy in March. 4.???????? What is your advice to the investors? Having fixed income allocation balances portfolio and provides stability. I think everyone needs to have some exposure to fixed income (debt funds). Like any other asset class, even debt funds have risk entailed, primarily interest rate risk and credit risk. While managing allocation across debt funds, one could look at adding interest rate risk at earlier stages and gradually switch this into regular accruals as age progresses. While managing such allocation, one should also keep in mind the broader cycles (macro factors have more bearing on debt funds) and avoid adding /reducing risk that is not commensurate to longer objectives.
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Mr.Avnish Jain-Head of Fixed Income | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Avnish Jain, Head Fixed Income, Canara Robeco said, We expect RBI to remain on hold in the February policy. Hence the correction in yields may have been overdone. Excerpts: 1.What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why? What will the key driving factors for yields? The yields have been on upswing for past few months as rising oil price have fueled concerns of higher inflation. Higher CPI on back of high food prices have further impacted sentiment. The market rates have gone up a lot in a short period of time. In short term we expect market to consolidate at current levels. The key factors for the markets will be the Union Budget and monetary policy committee outcome. Government sticking close to fiscal numbers will likely improve market sentiment. Global oil prices will also continue to impact market yields 2.What are your expectations from Union Budget 2018-19? We expect the Government to stick to the fiscal consolidation path, though the glide may undergo some change due to likely short-term growth disruptions caused by GST implementation. 3.What is your strategy for short term funds? What is your exposure to long term funds and why? Both short term and long-term rates have gone up considerably in past few months. We expect RBI to remain on hold in the February policy. Hence the correction in yields may have been overdone. The current levels of short term rates are attractive, considering that overnight rate is still hovering below repo rate of 6%. Inflation is likely to peak out at 5% and show a downtrend thereafter. We expect CPI to remain largely near RBI's target of 4% in the short term obviating a need for rate hikes. Further investment cycle is yet to gain a strong foothold, and higher rates may crimp any chances of pick-up in growth. Hence from longer term perspective short term funds provide an attractive investment option. Over long term we GST to be beneficial both on revenue side as well tempering inflation. This is likely positive for long term rate movements. 4.What is your advice to the investors? The sharp rise in rates last few months provide investors good opportunity to increase allocation to debt funds, in a phased manner, depending on investment horizon and risk appetite.
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Mr Mahesh Patil | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Mahesh Patil, Co-CIO, Aditya Birla Sun Life AMC said, We could see broad based growth across sectors and the pressure points on some of the sectors are easing off. We continue to follow the philosophy of investing in companies that could show growth and are available at reasonable valuations. Excerpts: 1. Equity markets are already up. Is there more room to grow? How are you approaching market right now? The performance of markets in 2017 has been impressive with a return of about 30% on large cap indices. However, if you look at longer term returns on a 3/5/10 year basis, it is low. The important thing to note is that both in terms of economy and corporate earnings, we are at the bottom of the cycle. While the P/E expansion may not happen much but the catch up with earnings growth is possible. We are estimating 19% growth for FY19 for Nifty 50 companies. We could see broad based growth across sectors and the pressure points on some of the sectors are easing off. We continue to follow the philosophy of investing in companies that could show growth and are available at reasonable valuations. 2. What is your investment space? Any stock specific traits which makes it part of your portfolio? What? We have more than 300 companies in our investment universe across market capitalizations. We look at companies that have strong competitive advantage, faster growth, good management, large addressable market, superior product, technology etc. 3. What kind of stocks you avoid, why? We are particular about investing in quality stocks that correct less in market correction and rebound quickly in case of market recovery. We keep our portfolio well-diversified portfolio, while staying away from high momentum stocks. 4. Is there any pre-emptive miss you regret (for instance, not adding a particular stock in your list or not possessing enough of it)? When we invest, we formulate a certain thesis on each individual investment to predict what should be our target price. There are certain periods where that thesis does not play out and plays out different. This could lead to misses. Most times we get back to basics to re-analyse our assumptions and how we defer from market opinion. It is part and parcel of fund management. As long as we capture more correctly than missing opportunities, our fund performance should be alright. 5. What will be your advice to investors? There is full conviction that India has strong growth potential in the medium to long term and the stock markets provide an opportunity to participate in it. However, the return expectation should be reasonable. As long as investors are seeking lower double digit returns for a 3- 5 year investment, they should not be disappointed. The synchronous global growth, continuous reforms from government that should bear results going forward and earnings rebound in second half of fiscal augur well for markets.
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Mr Akhil Mittal | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Akhil Mittal, Senior Fund Manager, Tata Mutual Fund said, In current markets, an investor looking to invest in bond funds or long duration funds should have a long term holding horizon (2-3 years) for making reasonable returns. Excerpts: 1.What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why? What will the key driving factors for yields? After witnessing a deep 200 bps easing cycle from RBI, wherein the 10-year benchmark yield fell from 9.10% in Jan 2014 to 6.20% in December 2016, the yields saw a hardening bias till April 2017, wherein the 10-year benchmark yield touched 6.98%. This can be attributed to change in monetary policy stance from accommodative to neutral by RBI in Feb 2017. Post that, the headline inflation (CPI) fell sharply to 1.54% in June 2017, much below RBI expected inflation target, leading to 25 bps rate cut by RBI. This saw 10-year benchmark yield fall to 6.41% by July 2017. However, post July 2017, inflation has been inching up and last recorded a high of 4.88% in December 2017. This has led to an expectation of end of rate cut cycle, with some market participants not ruling out a rate hike in 2018 calendar year. In its objective to reduce surplus liquidity from banking system, RBI did OMO sales of government securities to the extent of INR 900 bn. This exerted pressure on yields. Also, there have been increasing concerns over the government's likelihood of meeting its fiscal deficit target, as there has been a significant shortfall in revenue collections of the government while expenditures are tracking ahead of budget estimates. With likelihood of breach of fiscal deficit target, there is a possibility of further borrowing by government. All these factors put together, have led to significant hardening of yields. 10-year benchmark yield has reached a level of 7.30% as of 22nd December. Going ahead, we expect yields to remain range bound and witness a sideways movement till there is a clarity on Fiscal management by government, trajectory of inflation, especially with regards to crude prices, and GDP growth (a higher GDP growth will reduce any chances of rate cut). Market will look ahead to budget and we do not expect any major change in yields till then. For now, we expect 10-year benchmark yields to remain in range of 7.10% to 7.40%. 2. After the RBI policy rate status quo, where do you see the bond yield moving (long-term bond yields and short-term bond yields both) In its last monetary policy review, RBI kept key rates unchanged and signaled a cautious bias on rising inflation and uncertainty on fiscal. RBI also moved its expected inflation trajectory upwards for March 2018. This led to hardening of yields post policy review. With crude prices remaining high, and volatile food component still showing upward pressure on prices, there is a likelihood of inflation print recording higher than RBI expected trajectory. With base effect also coming into play, we expect inflation for month of December to inch up beyond 5%, thereby putting further pressure on yields. With RBI removing surplus liquidity from system and moving towards neutrality, we believe even short term rates will come under pressure and entire yield curve shifting upwards. 3. CPI and WPI have been inching up. Where do you see them heading? Why? Both CPI and WPI have been inching upwards since June 2017. From a low of 1.54% in June 2017, CPI has moved sharply up to 4.88% in December 2017. WPI has also moved up from low of 0.90% in June 17 to 3.93% in December 2017. High crude prices, rising services inflation (education and medical), hike in HRA by central government and some state governments, and higher food prices led to sharp increase in both measures of inflation. Going ahead, we expect inflation to remain in higher trajectory. With crude prices expected to remain high, and no respite expected in food prices, there isn't much scope for inflation to come down. Also with more states expected to hike HRA, there would be statistical rise in inflation gauge. If government also decides to deviate from fiscal consolidation and adopts an expansionary mode to boost growth, it might also add to generalized inflation. Given the base effect coming into play, we expect inflation to move beyond 5% in December 2017 and peak in June 2018 within 5% - 5.50%. Thereafter we expect inflation to come down and move closer to RBI medium term target of 4% by March 2019. 4. What measures RBI will take to control inflation? What will be its impact on yields? Within the monetary policy framework, RBI has only Repo Rate as a tool to manage inflation. If inflation moves higher than RBI expected trajectory and is expected to remain there, RBI can hike repo rate to meet its medium-term target. Prima facie, this will have an adverse impact on yields and we might see an upward shift in entire yield curve. However, the magnitude of rise in yields will be a function on how much rate hike RBI would be expected to do. For instance, if one expects RBI to hike only by 25 bps to meet its target, we would expect yields to move up by 20-25 bps only. If there is an expectation of further rate hikes, then yields would move much more. 5. What is the ideal time frame which an investor should look at while investing in bond funds in current markets? In current markets, an investor looking to invest in bond funds or long duration funds should have a long term holding horizon (2-3 years) for making reasonable returns. With uncertainties hovering around macro indicators, there is low near term possibility of easing. This would mean that any capital gain opportunity from downward movement in yields would take longer to realise. Hence, investors need to have longer holding horizon for investing in bond funds. 6. What is your strategy for short term funds? What is your exposure to long term funds and why? Tata Short Term bond fund aims to generate regular accruals through investments in high credit quality debt and generate capital gains from fall in interest rates. The average maturity of the fund has been in range of 2 years to 3 years in recent past given the easing monetary policy cycle. However, with inflation inching up and monetary policy cycle expected to be on pause mode for foreseeable time, we are currently cautious on duration. We have positioned the portfolio more towards regular accruals and lesser towards achieving capital gains from duration. 7. What's your investment strategy? We follow a philosophy of SLR in managing our Fixed Income Portfolio's where S for Safety, L for Liquidity and R for Returns is the guiding principle. We maintain high credit quality in our portfolios and do not go down the credit curve. This ensures safety of capital of investors. While allocating the portfolio, we maintain ample liquidity to ensure swift change is possible in case of change of stance / events. Returns are envisaged to be generated in line with objectives of the scheme and risk is contained in the process 8. How often do you re-balance your debt allocation? We keep a close watch on markets and our portfolios. In case any event / occurrence in the market requires a change in stance, or any developments wherein our views have changed, we rebalance our debt allocation on real time basis. This is a continuous process and not dependent on period / pre-specified date. However, we have formal process of discussions / market update and forming a view on markets. We do this through Investments Committee meeting / Debt Investment Committee meeting, which happens periodically 9. What is your advice to the investors? We would ask investors to stay invested for a longer time period and choose product category depending upon their risk appetite. If one has greater appetite for risk and longer holding horizon, long duration funds could be considered, whereas for investors with shorter investment horizon and / or lower risk appetite, short duration funds could be considered.
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Mr Rupesh Patel | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Rupesh Patel, Fund Manager, Tata Asset Management said, Equity market corrections can be considered as good opportunities by investors to increase their equity exposures. Excerpts: 1. Equity markets are already up. Is there more room to grow? How are you approaching market right now? Indian equity markets have delivered very strong returns in last 12 months with benchmark Sensex delivering about 28% returns and BSE Midcap Index about 46%. It would be prudent for investors to moderate their return expectations and not to extrapolate the returns. We believe from hereon; stock performances would be a function of earnings growth. As effects of demonetization and GST abate, the earnings growth should start improving in coming quarters. With the outlook on global growth improving and credit costs normalizing for the banking sector, the outlook for earnings growth on aggregate basis in FY'19 and FY'20 is positive and in high double digits. In terms of portfolio construction, we continue to maintain our overweight on beneficiaries of government sector capex and consumer plays. 2. What is your investment space? Any stock specific traits which makes it part of your portfolio? What? In terms of our investment universe, we broadly focus on two sets of companies. First would be companies which can compound their earnings over a long period of time, are efficient users of capital, run by decent managements and have innate strengths in their business models. These form the core of our portfolio. Second set is of opportunities, which are more tactical in nature, exist in market due to stock specific/industry specific/market specific developments and makes sense to buy at certain price. 3. What kind of stocks you avoid, why? In investing you never say never. However, I generally desist from investing in companies which, in the past have shown scant regard for minority share holders' interest and the ones which have a history of bad capital allocations. 4. Is there any pre-emptive miss you regret (for instance, not adding a particular stock in your list or not possessing enough of it)? I regret missing on some of the long term structural compounding stories, particularly the ones where I did not buy or exited early considering high near-term valuations. 5. What will be your advice to investors? Equity is a volatile asset class and has delivered superior tax adjusted returns over longer periods. However, to benefit from the same, one has to remain invested through the volatile phases. Hence, investors should not get too much worried about events which may have near term impact. We believe, India offers a long-term growth opportunity. In terms of earnings, we are at the cusp of recovery in corporate earnings and market returns would be reflective of the same. Hence, equity market corrections can be considered as good opportunities by investors to increase their equity exposures.
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Mr. Ravi Gopalkrishnan | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Ravi Gopalakrishnan, Head, Equities, Canara Robeco Mutual Fundsaid,We aim to invest in fundamentally strong businesses and our team analyzes the fundamental attributes, historic business performance, recent developments in operating environment & future expectations.
Excerpts: 1. Equity markets are already up. Is there more room to grow? How are you approaching market right now? The Indian Equity markets have reached new highs on the back of improving macro economic fundamentals and strong domestic flows. But despite the run up, the valuations of the overall markets are slightly above the historical averages. However, this must be put in perspective with the bond yields which have seen a secular decline over the past 3 years. Hence, if one were to look at equity valuations in conjunction with bond valuations, the expansion of P/E multiples is justifiable. Hence, we believe that over the long term there is a definite room to grow amongst global stagnancy. However, markets can get volatile as corporate earnings have not kept pace and a meaningful revival is still a quarter or two away. 2. What is your investment space? Any stock specific traits which makes it part of your portfolio? What? Strong research and robust processes that we follow before investing in a company is what really makes the difference for us. We aim to invest in fundamentally strong businesses and our team analyzes the fundamental attributes, historic business performance, recent developments in operating environment & future expectations. Only once a strong investment case is established, will a company be considered to be taken into the portfolio. More specifically, we like to look at companies which have a unique business model, with an ability to gain market share, companies where there is scope for value migration and last but not the least companies involved in Balance Sheet improvement and turnaround/restructuring cases. 3. What kind of stocks you avoid, why? We usually refrain from investing in highly leveraged companies, companies with a questionable management record on governance or companies solely dependent on outcome of events to drive growth. Such companies do not have any concrete or robust models for generating cash flows and hence no sustainable growth prospects. 4. Is there any pre-emptive miss you regret (for instance, not investing in a stock or not possessing enough of it)? Our portfolios have seen stable and consistent track record for the past several years. It has been our endeavor to select companies at reasonable valuations that could become a part of the overall portfolio. In the correction seen in Jan-Feb 2016, and post the demonetization exercise in Nov 2016, we could use the volatility in the markets to pick-up really good quality franchises across all sectors which had corrected. However, there are pockets in markets or themes we may have missed. For e.g we were not able to identify the turnaround in global metals cycle and hence missed that opportunity. 5. What will be your advice to investors? We continue to believe that Indian markets are in the Sweet Spot and offer a great opportunity for domestic investors to create long term wealth. As India moves ahead towards increasing prominence in an ever-more connected world, Indian capital markets could benefit tremendously from the long term positives offered by its demographics, conducive macro-economic environment, improving corporate earnings and government supported initiatives towards financial inclusion & tax reforms, though with a little volatility. For investors, it is advisable to invest in the markets with at least 3 to 5-year investment horizon. The reason for doing this is to smoothen out the volatility in the markets overtime. We believe, time in the market is more important than timing the market. Investors should focus on asset allocation instead of looking at absolute benchmark levels when making an investment decision.
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Mr. Avnish Jain | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Avnish Jain, Fixed Income at Canara Robeco Mutual Fundsaid,The current environment is conducive for longer term trend in interest rates. Investors should stick to asset allocation strategies and continue to invest in debt fund according to their respective risk profiles. Excerpts: 1. What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why? What will the key driving factors for yields? Fixed income continues to be driven by both local and global events, though local factors have far more weightage. Sharp fall in inflation since July 2016 brought CPI below RBI's target of 4%. CPI touched a low of 1.5% in June and this prompted RBI to reduce rates in August policy. Post that inflation has shown an uptick, primarily driven by few items in the food basket. Core inflation has also shown an uptick as GST got implemented and government finalized the recommendations of 7th Pay commission on allowances. In the near-term yields have inched up as near term expectations of rate cut have faded. In the medium term we are likely to see yield go down as slowing growth rate debate has taken center stage. With inflation largely under control, RBI may look to support growth in absence of any material fiscal support.
2. After the RBI policy rate cut, where do you see the bond yield moving (long-term bond yields and short-term bond yields both) Both short term and long term yields have moved up post RBI rate cut as further near term cuts are not expected by the market. However, as inflationary pressures of food prices is expected to subside post monsoon, inflation is likely to start moderating again. With growth concerns rising, it is expected RBI may ease policy rates further. Short term and long term bond yields should go down in the medium term.
3. July CPI and WPI have inched up. Is it the beginning of rise in inflation? Why? July CPI has gone up but remains below RBI's medium-term target of 4%. As food price pressures typically subside post monsoons, inflation should moderate on lower food prices. Further a sharp drop in growth coupled with GST implementation is likely to keep a lid on core inflation.
4. What measures RBI will take to mop-up excess liquidity? What will be its impact on yields? RBI is likely to continue to use OMOs, MSS and daily LAF operations to continue to mop up excess liquidity. With ample liquidity, there is likely to be no meaningful impact on yields.
5. What is the ideal time frame which an investor should look at while investing in a short-term fund? An ideal time frame for a short-term fund is 1-3 years
6. What is your strategy for short term funds? What is your exposure to long term funds and why? Short term fund is a combination of high quality accrual and some duration management. The fund predominantly invests in corporate bonds. Long term funds typical invest in government bonds and AAA corporate papers to maintain liquidity, as the duration is actively managed. The asset allocation between government bonds and corporate bonds depends on the available spread.
7. How often do you re-balance your debt allocation? All funds are actively managed in line with overall interest rate view.
8. What is your advice to the investors? The current environment is conducive for longer term trend in interest rates. Investors should stick to asset allocation strategies and continue to invest in debt fund according to their respective risk profiles. Depending on the fund, the investment horizon should be anywhere from 1-5 years.
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Mr. Pankaj Pathak | In an interview with Anjali Raulgaonkar from Capital Market Publishers, Pankaj Pathak, CFA - Fund Manager-Fixed Income - Quantum AMCsaid, Although the valuations are attractive in longer segment, at present there is a very high uncertainty?in the bond market. Broadly, we expect bond yields (10year benchmark bond) to trade in the range of 6.60%-6.90% taking cue from fiscal developments. Excerpts: - What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why?
Indian bond yields have moved up by around 30 basis points (100 basis point is equal to 1%) across the curve over the last three months. Multiple factors have contributed to this up move in yields. RBI's Monetary Policy Committee came across as inflation hawk and did not pay much heed to the growth slowdown. There had been repetitive media reports about fiscal stimulus and government not meeting the fiscal gap target. Global yields were on up move as FED started withdrawing the monetary stimulus. All these factors and the geo political tension in Korean peninsula caused a negative sentiment in bond market in the last three months.Now the bar for further rate cut is very high. At current levels, bond valuations are attractive but uncertainty about fiscal and inflation risk may play on investors' minds which could keep the bond yields elevated?for some time. What will be the key driving factors for yields? With low probability of rate cuts, developments over fiscal deficit will drive the market in near term. Now after the announcement of bank recapitalization bond, the uncertainty in bond market has increased further. The finance ministry has not yet disclosed the modality of these bonds which leaves us with many possibilities about its impact on fiscal deficit and market demand-supply. Going forward, market will look out for any detail about the structure of these bonds and guidance about government's fiscal plans. After the RBI policy rate meet, where do you see the bond yield moving (long-term bond yields and short-term bond yields both)? Although the valuations are attractive in longer segment, at present there is a very high uncertainty?in the bond market. Broadly, we expect bond yields (10year benchmark bond) to trade in the range of 6.60%-6.90% taking cue from fiscal developments.?? ?? SeptemberCPI and WPI have inched up. Is it the beginning of rise in inflation? Why? Inflation is likely to move northward?and print above 4% mark by Q1 2018 primarily due to adverse base effect and statistical adjustment of HRA increase under the 7th pay commission. We expect that CPI will remain within the RBI's target band of 4% (+/-) 2% over the medium term as the effects of supply side structural reforms will be more visible over the period. The new monetary policy framework with inflation as policy anchor added discipline to the inflation targeting process. This will encourage the RBI to remain proactive in tackling inflation risks. ?????? What measures RBI will take to mop-up excess liquidity? What will be its impact on yields? RBI has been relying on term reverse repos and OMO sale of government securities to absorb the excess liquidity from the banking system. Usually the cash demand increases during October-December quarter and we are witnessing the similar phenomenon this time as well. The currency in circulation has increased by INR 580 billion during this month up till 20th October. We expect the liquidity situation to normalize by the first quarter of 2018. RBI may stop conducting OMO sales from next month.??? What is the ideal time frame which an investor should look at while investing in a short-term fund? Given the substantial tax advantage, investors are better off investing in debt funds for over 3 years. This will also help in reducing the uncertainty of returns coming from volatility in market interest rates. ????? What's your investment strategy? At Quantum, we follow a team based portfolio management approach. We conduct proprietary research for our investment decisions and follow a top down research and investment process. Although we believe that further rate cuts may not come through, still considering the attractive valuations we are maintaining above average maturity profile in the Quantum Dynamic Bond Fund portfolio. We remain vigilant about developments on fiscal front and actions of global central banks.?? How often do you re-balance your debt allocation? We follow a dynamic approach in taking investment calls based on our view on interest rate. Thus the re-balancing of portfolio depends on movements in market rates and our reading of the same. What is your advice to the investors? It has been a significant run in the bond markets since August 2013. Many of the bond funds have delivered double digit returns during this period. But investors should lower their return expectations from bond funds as capital gains will not be the driver of returns going forward. As the purpose of debt allocation for many investors is to provide stability to the overall portfolio, investors should also consider the possibility of capital losses when investing in longer maturity bond funds (if bond yields start rising).
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