Aashish Somaiyaa, an engineering graduate in Polymer Science and a Masters in Management Studies in Finance from NMIMS, Mumbai, has over 13 years of experience in sales and distribution, channel management, product development and institutional sales in ICICI Prudential AMC and a brief stint at project management with Bharti AXA Investment Managers. In a freewheeling interview with Sunil Kumar Singh, he says the opportunity in the market is still not lost and highlights why the company likes to buy a good business for a fair price rather than buying a fair business for a good price.

Could you give us your view on the current state of India’s equity markets? Do you believe there could be more downside in the coming months?
We are positive on the equity markets and we have consistently been advocating higher allocations to equities. Leaving market conditions aside for a moment, the basic issue is that people seem to have forgotten equity investing altogether. It is almost become fashionable nowadays to say that one doesn’t invest in equity but one invests for double digit returns in fixed income or real estate. Let’s be very clear on some basics first – double digit or even higher double digit returns in fixed income or real estate can only come with higher risk. We are staring at a situation where people want higher and higher fixed returns and that comes only with higher risk. 
On the other hand, equities are dramatically under-owned by Indians today. In the last few years we have systematically sold out of quality companies to FIIs and we are left with all the junk of the market which was bought at peak valuations in previous bull runs. One often gets saddened by the fact that foreigners have shown more conviction and made more wealth in our markets than we Indians ourselves. One can’t help but compare the situation to a rule of 200 years by foreigners on our soil – that was illegal and unethical on their part, today what is happening is perfectly legitimate way of capturing our country’s businesses and we have handed it on a platter without retaining enough for ourselves to gain from. The opportunity is still not lost, Indians need to repose more faith in India’s economy.
The current state of markets shows sharp improvement in fundamentals of the Indian economy over the last 6 months and at the same time we find that people are unwilling to recognize these developments. 5-10% downside in markets is always a possibility but beyond that we don’t see many fears.

Do you believe the country’s GDP growth has bottomed out and the growth prospects are going to improve?
Yes, we are confident of this. It will be supported by stabilizing external situation, bottom of inflation and peaking of interest rates and also bottoming of earnings growth in current quarter. Policy environment has already changed for the better may it be at central bank level or government level.

A lot of blue-chip stocks such as Dr Reddy's, Infosys, TCS, Tata Motors, Maruti and Lupin are trading near their life-time highs but their valuations are far from their peaks. Do you believe this is a time to buy these stocks?
Our research shows that average life span of blue-chip companies in India is already near 60 years. This means that top performing high quality companies such as the ones you have mentioned here have already spent over 60 years in business and considering we call them blue-chip there is every reason to believe they will continue to do so. 
While this is the average life span; companies like Infosys and HDFC Bank have been around for less than 20 years. Now just think, how many times in the last 20 years we have seen buy, sell, hold, over-valued and under-valued judgments on these blue-chips. 
The reason for presenting this information in response to your question is that, we at Motilal Oswal believe in identifying blue-chip companies may it be in the large cap or in the mid cap space and then holding on to them to benefit from the best part of their growth cycle. We believe in ‘Buy Right: Sit Tight’ and hence we believe that it is always a good time to buy if you are buying blue-chip companies like the ones you have named. 
Even if you happen to buy them slightly expensive or above their long term average valuations, in the worst case you might have a year or so of no movement in stock price, but eventually they will beat the market.

Your strategy description states that the MOSt Focused 25 Fund invests in upto 25 companies with long term growth potential. On what basis do you determine your fund’s exposure to each of the companies?
As a house, our investment philosophy rests on three pillars. The first is quality growth and longevity: A value based investment philosophy for picking stocks that signify Q=G-L; where Q denoting quality of business and management, G denoting growth of earnings and sustained RoE, and L denoting longevity of competitive advantage or economic moat of the business.
We are a value based investment house. But value to us does not necessarily mean buying only cheap stocks – value to us also means buying companies whose earnings longevity and earnings growth are not rightly priced by the market. We like to buy a good business for a fair price rather than buying a fair business for a good price.
The second pillar is buy and hold. We are strictly buy and hold investors and believe that picking the right business needs skills. And holding onto these businesses to enable our investors to benefit from the entire growth cycle. 
The third pillar is focus. Our portfolios are high conviction portfolios with 15 to 25 stocks being our ideal number. We believe in adequate diversification but over diversification results in diluting returns for our investors and adding market risk.

What is your view on the current debt market scenario?
We believe that interest rates are set to decline. This is as a result of improving macro conditions in India and bottoming of the economic cycle in the near future. We are not so keen on recommending credit at this juncture but one should take exposure to long maturity gilts.
With bond yields hovering at around 9%, do you believe ultra-short term bond funds could be a good option for investing?
As stated above, our recommendation is to invest in long-dated gilt funds. Ultra Short Term Funds would deliver sub-optimal returns with sharp decline in short term rates already having played out.

Where do you expect benchmark 10 year G-Sec yield in the next three months to be?
We expect the 10 year to be closer to the 7.75% mark.

Last year, gold dipped 28% after a 12-year bull run, posting its biggest annual decline in 32 years. Do you believe gold has lost its safe haven status?
There is a lot of talk one hears of tapering in the US with reviving growth prospects in that country. If one looks at the situation very simply, in the last few years of economic turmoil in US, the maximum liquidity has flown into US treasuries, oil, gold, commodities and then may be areas like emerging market equities and real estate selectively.
With revival in US growth prospects it is natural to see US treasury yields rising and commodities, oil and gold correcting. We don’t see gold delivering anything stellar anytime in the near future and I would agree that from price performance expectations it no longer remains safe haven. 

Where do you see the next trigger for markets? Do you see the outcome of general elections this year would set off a rally?
The outcome of general election is a small or near term issue. The economic policies that the UPA has already unleashed when their back was to the wall on the policy front are likely to have more positive impact in the medium to long term. 
Also, we believe that sentiments are always at extremes – few days back people discounted AAP’s challenge to national parties and now people are saying AAP can form a third front government and really threaten the national parties. It’s obvious that both these positions are wrong. We believe that there is positive political environment created by the events of the last 6 months. We expect a solid government to be formed at the centre and we believe that the events of last 6 months and the challenge from a credible formation like AAP will only ensure all of us get better governance and administration. 
We have a constructive outlook to the market. On a lighter note, investing in equity demands optimism; optimism at least to the extent that one doesn’t perpetually live in fear of the world coming to an end!