'The outlook on 3 key macroeconomic issues - CAD, inflation and growth is healthy,'' says Manish Gunwani, senior fund manager, ICICI Prudential AMC.
In an interview with Varsha Ladewar of Myiris.com, Manish Gunwani said, ''There are some sectors which tend to grow faster than the economy and hence stocks in these sectors have potential to outperform.''
Excerpt from interview Myiris had with Manish Gunwani:
1. How do you see global economic and market outlook?
The global economic outlook is mixed - in terms of growth US is doing well but Europe, Japan and China all are struggling. Overall given the structural issues in most developed economies like demographics, debt etc. it does look like those regions will continue to be in a low growth and low interest rate environment for the near future.
As far as the domestic economy goes, the outlook on 3 key macroeconomic issues - CAD, inflation and growth is healthy. Good news for many corporates is that India is heading into a phase where there is a lot of spare capacity and we see the demand coming back. Typically in such a phase when demand comes back with a lot of fixed cost already present in the system, the profitability in those sectors will be strong over the next 12-18 months. We believe the economy is in a sweet spot in that sense and the market is reflecting it.
However, the unprecedented returns delivered over last 8 - 10 months have built-up huge expectations in the minds of investors; Investors should moderate return expectations going forward. We maintain a 'cautiously bullish' stance as most sectors trade near their long-term average valuations. Investors should moderate their return expectations. Having said that, we believe that equities have potential of generating reasonable returns over next 3 years.
2. Tell us about ICICI Prudential Balanced Advantage Fund. What is the Investment strategy?
ICICI Prudential Balanced Advantage Fund is an open-ended equity scheme thatfollows a dynamic asset allocation strategy and seeks to provide investors a reasonable opportunity to benefit out of market volatility. It uses an in-house model, based on Price to Book Value (P/BV), with a view to limit the downside risk during a falling market, while aiming to capture the upside in a rising market.
The Scheme is a blend of large and mid-cap stocks. While the large cap stocks represent established enterprises selected from the Top 100 stocks by market capitalization, the midcaps are smaller business entities with long-term growth potential.
3. ICICI Prudential Mutual Fund recently launched ICICI Prudential Growth Fund. Please share with us about the fund.
ICICI Prudential Growth Fund - Series 3 is a three and half year close ended equity fund that aims to provide capital appreciation by investing in a well-diversified portfolio of equity and equity related securities. The strategy of the fund is to identify growth stocks within the framework of fundamentals and management quality that have revenue growth higher than nominal GDP growth. The fund would opportunistically investing across market cap and may also take concentrated sector calls limited to five sectors.
The economic transformation continues with major macroeconomic indicators showing a positive outlook. Macro stability conditions are expected to improve further with the key driver being sustained deceleration in Consumer Price Index Inflation. This pick up in sentiments is likely to spur revenue growth for companies as Gross Domestic Product growth accelerates. We believe there is an opportunity available for equity markets with the earnings growth likely to improve going ahead.
4. What is the growth strategy for your fund house?
The fund house keeps investors' interest at the helm of the organization's objective by offering investors a product suite that caters to their every possible need and creating significant value for them by managing money well. If a fund house manages money well with complete investor-centricity, more investment is bound to come in. Over the last three years, the Assets under Management (AUM) of this company has grown from a modest Rs 634.19 billion in 2010-11 to around Rs 1,300 billion currently which is a CAGR growth of nearly 20% (As per average assets under management as on August, 2014).
There has been a keen focus on maximising the stakeholder's profitability without compromising the objective at helm which is investor centricity and investment centricity. Over the last four years, company's bottom line has seen a CAGR growth of more than 25%. The growth of assets under management (AUM) has been contributed significantly towards the profitability of the company. Also, the mix of assets has tilted towards equity which ensures higher margins for the company. In fact, the equity market share increased to 12.8% in Aug 14 from 11.1% in Mar 14 and 8.6% in Mar 13. Further, the core of the investor base is now contributed by the retail category of investors, which again is a margin booster as compared to the institutional category.
5. According to you, which sectors will likely to outperform or underperform in near term?
As outlined above there are some sectors which tend to grow faster than the economy and hence stocks in these sectors have potential to outperform. These sectors include financials, healthcare, technology, consumer discretionary etc.
6. Your advice to investors in current market scenario.
While diversified equity funds are a must for core allocation in the current market scenario investors could add a flavor of funds in the balanced category for managing market volatility. Essentially, balanced funds offer the stability of debt and growth of equity; thereby reducing risks by spreading investments across more than one asset class.
These funds with dynamic asset allocation models benefit out of volatility as they capture upside by increasing allocation to equity when the markets are declining, and limit down-side by reducing exposure to equities when markets are rising- completely reverse of what retail investors normally do. ICICI Prudential Balanced Advantage Fund is one such offering. We also have a constructive view on long-term duration funds, as with inflation moving towards a softening trend, interest rates are likely to fall which could benefit investors over the longer-term horizon.
