Sankaran Naren manages six funds worth approximately Rs 9,845 crore, Naren is knows to stick to his convictions, which many feel is rather conservative. But his extreme faith in value investment and a yearning to do things differently has found many admirers. He feels efficient and active fund management is about effectively leveraging emotional factors and personal biases with the support of factual data and research.
Which direction will the markets take from here?
While it is impossible to predict the market, we believe that the Indian equity market in 2011 is expected to remain volatile. There will be a few key issues of concern, such as monetary tightness because of inflation and the current account deficit that can impact the movement of the markets. The corporate earnings estimates are encouraging. We should see sustained growth in the Indian markets over the next few years. More than the value of the index, one should look at the valuation, which is a lot more comforting and realistic, compared to those from 2007.
What triggers can change the complexion of the markets?
Global events can trigger the markets to dip. But, these should be seen as buying opportunities in India. There is concern on oil, which I feel can play spoilsport if it keeps soaring. And the current account deficit is also an issue which can dampen the Indian markets. Globally, there will be some turbulence and volatility simply because the issue of sovereign credit crisis still looms. Some amount of this volatility is also reflected in the currency markets. For example, the weakness in the euro, which is also reflected in bond markets where the spreads are on the rise. Currently the banking system is in place and earnings are good, the sentiments are good, which is a positive in itself.
Which sectors hold promise in 2011?
Currently, the market is driven by consumption, but infrastructure is a clear choice over the next two years. However, infrastructure needs to be supported to sustain the expected GDP growth. Sectors based on exports and consumption related stories would be the next choice. For the average investor, the strategy would be proper asset allocation and staying invested for the long-term.
What is your view on mid- and small-cap stocks?
Under normal circumstances, small- and mid-cap stocks will be the growth drivers boosting the large-cap stocks. After all, some of the small-caps are potential mid-caps like some of the mid-caps are potentially large-caps of the future. However, sticking only to market cap play will be difficult and unfair. The liquidity that these stocks offer is suspect and one can get into a potential trap if going only by market cap play. Moreover, one can have only limited investments in these stocks which can be risky. Stock selection will be the key and one will then need to contextualise it with sectors.
This interview appeared in Wealth Insight January 2011
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