K N Sivasubramanian Oversees 18 equity funds worth about Rs 14,003.81 crore besides advising offshore funds worth $2 billion, Siva has been closely associated with the investment industry. He has stuck to a bottom-up approach and focuses on stock-picking and firmly believes in a mix of growth and value. He is known to focus on long-term wealth creation, ignoring short-term momentum stories.
Which direction will the markets take from here?
A lot depends on the way the global situation pans out. It will need to be seen how various factors play out: global imbalances, currency issues, austerity measures and inflation, as they will have an impact on global flows. Hence, we should witness continued volatility in the markets. But the underlying trend is likely to remain positive, if there aren’t any major risk events unfolding. At a broad level, equity markets in the long-term will react to economic value added (EVA) trends and cost of capital. We expect EVA trends to be positive and cost of capital is expected to reduce over a period of time.
What triggers can change the complexion of the markets?
At this stage, rising global commodity prices and inflation are the key headwinds facing India along with global investor sentiment that drives portfolio inflows into India. Corporate governance issues that have emanated out of the recent developments highlighting graft also need to be evaluated.
We believe clear progress on the policy front can be a key positive trigger for the markets – we need progress on FDI, infrastructure, tax and labour reform fronts. These reforms are expected to provide fillip to domestic growth as well as push up India’s competitiveness. Global factors such as improved pace of recovery would also aid sentiment and bolster domestic growth momentum through exports.
Which sectors hold promise in 2011?
In our view, sectors that can piggyback on the domestic consumption and investment theme are good investment opportunities from a medium to long-term perspective and help take advantage of the structural transition underway in India. Infrastructure spending needs to be pushed to around 9 per cent of the GDP over the medium-term, for sustaining the current growth rate and addressing the current bottlenecks. Some estimates indicate that around $1.7 trillion of financing would be required by 2020 to meet the infrastructure needs. This is expected to be funded by the strong domestic savings pool as well as by global investors. Channels for mobilising the large domestic savings pool and clear policy formulation can boost sector growth potential and ensure timely execution of various projects.
What is your view on mid- and small-cap stocks?
In recent weeks, mid- and small-cap stocks have underperformed their large cap counterparts owing to reduced risk appetite and reports about corruption allegations against some of the realty and banking as well as financial sector companies. While sentiment may remain weak over the near term, we expect mid and small companies to deliver strong growth over the medium- to long-term, given the rapid growth being experienced by India. The key is to focus on quality companies in the space, as against taking a top-down call.
This interview appeared in Wealth Insight January 2011