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Global Liquidity decides Valuations

BP Singh, ED & CIO-Equities, Pramerica MF, believes that while today’s investments are stock-specific, valuations are a global concept…

BP Singh, ED and CIO-Equities, Pramerica Mutual Fund, has come back to the mutual fund industry after an eight year hiatus. In this period he was managing a hedge fund and says there is little that has changed in the industry as investor inertia still continues

You are making a full circle by coming back into managing equity mutual funds, what is it that has changed according to you?
I came back to the mutual fund industry after around eight years. Surprisingly, I did not find too many changes. Though there are minor changes in the industry, there isn’t any dramatic difference. Only the size of the industry along with the number of players has gone up, otherwise it feels the same.
Back then, it was difficult to convince investors to invest in mutual funds and it remains the same even now.

Is there any change in orientation when managing money for a hedge fund compared to mutual funds?
Not really. Every investor wants his investments to beat inflation and protect capital. This overall perspective remains in hedge funds as well as mutual funds. However, when speaking to institutional players, the dynamics of communications change. For example, if you interact with an offshore investor who is based in a country which is not growing and talk about the India story, it looks very compelling.
But when you speak to an investor who is already in a booming economy (like in India) and has multiple options to invest, a lot more effort is needed.

What investment strategy do you follow?
I follow a very basic approach when it comes to investing. After having spent a considerable time in the Indian markets, I know most of the key companies quite well. I believe that while today’s investments are obviously stock specific, valuations are a global concept. So it is the global liquidity which comes and decides the valuations. Local bottom up research will provide you clues as to where the valuations will flow to in the future. My style is a combination of both, bottom-up as well as top-down.
So the concept is not only to pick the companies that generate high earnings growth, but stocks where the PE expansions are likely in future. We have to pick up those stocks where growth is going to be delivered by the company but it is yet to be identified by the markets.

Pramerica Equity fund has seen consistent underperformance, how do you plan to review this scheme’s performance? We at Pramerica are focused on delivering consistent returns over the long-term. Given this perspective, it would be unfair to judge a scheme on its shorter term performance.