Valuations may not return to their historical averages, believes Shridatta of Canara Robeco Mutual Fund
Editor’s note: The Budget 2021-22 has suddenly changed the market sentiment. What debt markets don’t like—the higher trajectory of fiscal deficit and busy borrowing calendar of the government—equity markets seem to be enjoying for now. In the absence of strong capex plans in the private sector, the government has decided to spend more on physical and social infrastructure to turbocharge the economy.
But will all this automatically translate into your portfolio generating superior returns? One has to build a portfolio, keeping in mind macro developments. But in the end, the quantum and quality of returns largely attribute to bottom-up portfolio construction.
We recently caught up with Shridatta Bhandwaldar, head of equities at Canara Robeco Mutual Fund, to understand his thoughts on the current market set up and the broad brush investment strategy of the fund house in today’s context.
In his opening comments, Shridatta drew attention to the healthcare problem caused by the coronavirus pandemic, which he thought has been more or less dealt with effectively. He sounded optimistic about the majority of the developed world getting vaccinated in the Q1CY21, even though the second wave has rattled them over the past few months. From the visibility stand point, the markets have already factored in the second wave and the various vaccination programmes have instilled confidence. As far as India is concerned, there hasn’t been a major second wave so far—a major positive.
He remained fairly confident about the present macro construct across the globe. On the backdrop of household American savings scaling a two-decade high, he expected the aggregate demand to remain tender, thus allowing ultra-loose monetary policies to continue in the foreseeable future.
Emerging markets, especially the supply chain partners of the US, might receive higher capital inflows over the next 3-4 quarters, resulting in their forex reserve rising significantly. He didn’t expect this construct to change, at least over the next 12-15 months.
Speaking about Indian markets, Shridatta sounded fairly optimistic despite the recent run up, especially from November 2020 onwards. He believed, the net inflows by Foreign Portfolio Investors (FPIs) might continue to remain reasonably durable so as long the benign fiscal and monetary stance in the west continues.
Shridatta had a crisp answer to our question on dependency of Indian markets on FPIs in future. He thought this dependency might fade away only gradually since FPIs make up nearly 22% of the market at present. In other words, the financialization of domestic household savings has a long way to go before they become a meaningful part of Indian markets and can replace FPIs as the central force.
We also asked Shridatta whether valuations of Indian equities have been dangerously high at this juncture.
He opined markets have already factored in FY22 growth. Since lower policy rates in India have resulted in financial suppression of savers, the valuations may not return to their historical average, despite being fairly expensive at this juncture even on 1-year forward basis.
In Shridatta’s assessment, the stress in the financial system is likely to be surprisingly low—contrary to the widely conceived notion—at least in the case of top private sector banks and well-managed NBFCs. Credit costs are likely to be much lower and recoveries could be surprisingly higher.
Since we spoke to Shridatta prior to the budget, he was a little concerned about fiscal support of the government being low, especially after factoring in food subsidies. The Budget 2021-22 may have addressed this concern, at least to some extent.
When asked about the outlook of corporate earnings, he felt the profit of the top 200 companies has been rising. Exports now occupy a 55% share in corporate earnings of Nifty 50 companies which is noticeably high.
We also posed him a question on the prospects of Aatmanirbhar and Make in India Programmes. In response, he exuded confidence in the Production-Linked Incentive (PLI) Scheme. He thought such schemes may become the primary mode of incentivizing and promoting domestic manufacturing with an objective of import substitution and export promotion. He didn’t see much scope for fiscal handouts, given the need to walk the tight rope on spends.
Canara Robeco Mutual Fund has demonstrated consistent performance across equity fund categories over various timeframes. To understand the factors contributing to such performance, we asked a few questions on the portfolio strategies of the fund house.
Data as on February 01, 2021
(Source: ACE MF)
Shridatta emphasized the bottom-up stock picking approach of the fund house which he felt contributed immensely to the good performance of various fund offerings.
Shridatta remained optimistic about a cyclical recovery in autos which, he believed, could be fairly strong. On the other hand, exposure of the fund house to FMCG companies has been from a defensive consideration only.
As you must have noticed, the investment strategy and fund positioning isn’t based on a particular event viz. Budget or Joe Biden’s stimulus package amongst others. On the contrary, the focus of the fund house has been on selecting companies that are well-positioned to witness a structural growth in earnings under the given macroeconomic environment.
Did you find this coverage helpful? Please let us know, it may help us organize more such investor awareness programmes in future.
Important note (Please read as a disclaimer): None of the mutual fund schemes discussed in this article is a recommendation to buy, hold or redeem. So is the case with sectors that might have been referred to. Views expressed herein overtly or even otherwise are solely that of the guest and under no circumstances should be construed as those of Ventura Securities. The only purpose of this article is to create awareness amongst investors.
Investing in mutual funds involves risks. Please consult your financial advisor before taking any decision pertaining to your mutual fund portfolio.
You may also like to read: Are markets overheated? Vinit Sambre of DSP Mutual Fund offers an elaborated perspective
Disclaimer:
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.
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