Widely read:
India's equity markets have been on a roll. Foreign investors have pumped in Rs 1.2 lakh crore this year alone, domestic mutual funds have injected over Rs 60,000 crore, and the Sensex, as a result, has grown nearly double digits year to date. Given the euphoria, we decided to speak to three prominent fund managers and understand their strategy from now on.
Of valuations and strategies
With markets in red-hot mode, all the fund managers were unequivocally cautious about market valuations.
Niket Shah (Fund manager at Motilal Oswal Mutual Fund)
Shah, who manages the flexi-cap and mid-cap funds at Motilal Oswal, points out that mid-cap valuations are marginally higher than their five- and ten-year averages.
He was also "cautious" about the market in the near term, saying there might be a period of consolidation: "Given the current circumstances, we may see sector rotation inside the index, and we are cautious about the entire market. Overall, we may not see a large rally in the near future, and there may be some consolidation."
The strategy going forward
Although small-cap companies have performed exceptionally well, Motilal Oswal continues to discover opportunities in them. (This is a rather intriguing take, considering Nippon India and Tata recently stopped accepting lumpsum investments in their small-cap funds).
He has also turned extremely bullish on the IT sector as they are seeing signs of bottoming out while being underweight on financials because they have had a strong run in the last two years and may face the prospects of declining asset quality and slowing credit growth. "To generate alpha in this type of frenzy, one must be anti-consensus," he said.
Vinit Sambre (Head of equities at DSP Mutual Fund)
Sambre, too, is gun shy at the moment, saying that while he was emphatic about India's structural long-term story, the short-term movement needs to be managed as "the market valuations have moved up fast compared to the fundamentals".
"Whenever markets have seen such a quick run-up, there is always the risk of convergence between the fundamentals and values. So, from hereon, either the fundamentals need to catch up with this rally or there might be some sort of time correction or consolidation going forward."
"Investors who are coming in at higher multiples (when markets are at all-time highs) should be patient to get returns. Someone who is looking for short-term investments should not expect quick returns, going forward.
His strategy
Having said that, he still believes there are "some pockets that remain well-placed from a two-year perspective". Healthcare is one such pocket, according to him.
At the other end of the spectrum are capital goods, engineering and consumer discretion, which have seen a sharp run-up. This is why they are "cautious about sizing our bets" in these segments.
He further added that, despite the market uptrend, they remain invested in high-quality businesses and good companies as their fund house does not generally take large cash calls. "The chances of going wrong (with this strategy) in the long term are pretty low, absolutely nothing," he said.
Neelesh Surana (Chief investment officer at Mirae Asset Investments)
Surana remains optimistic about the markets but has tempered his stance in recent weeks, identifying higher crude prices as a potential risk.
While he views the banking and pharma sectors as favourable for investment, he cautions against small-cap stocks, particularly in sectors like capital goods and defence, due to high valuations.
To give your perspective, both mid-cap and small-cap indices are up by nearly 16 per cent, while the capital goods and defence segments have shot up 24.79 and 30 per cent, respectively.
His strategy
"In the current market scenario, one should emphasise the importance of careful stock selection within sectors, as deep value opportunities are scarce," he said.
However, Surana says that investors with a time frame of more than three years can still enter the market at its current level, but advises doing so in a staggered manner.
Rahul Singh (Chief investment officer of equities at Tata Mutual Fund)
Singh also sang from the same hymn sheet, saying the Indian markets are at a premium compared to other emerging markets.
"We believe in the strategy of growth at a reasonable price (GARP) and are not exposed to very high risks in the portfolio," he added, referring to GARP being an investment strategy that intends to take the best of 'growth' and 'value' styles.
His strategy
He said their fund house is neither aggressive nor overweight on any sector, stating that they'll only be able to "navigate appropriately if there is some minor correction".
Suggested watch: Sensex hits all time high. Should you invest?
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