How do you think equity as an asset class will perform in 2016?
Sohini Andani: Equity as an asset class would do well in 2016 as the markets are factoring in many negatives like lower domestic growth, problems in China, lower commodity prices and weaker currency and valuations are looking more reasonable now.
Which sectors would you focus on in the coming 2-3 years?
SA: We like industrial, construction, cement and consumer discretionary sectors, which would benefit from the upswing in the economy.
SBI Blue Chip Fund has been an exceptional performer in the past few years in the large cap segment. What do you attribute the success of the fund to?
SA: The portfolio has benefited a lot from the bottom-up stock selection within each sector. Our internal research team has contributed meaningfully towards this. In general, we benefitted from being overweight on consumer discretionary and pharmaceutical sectors and underweight on financials, energy and utilities.
The market has been extremely bearish for the past six months or so. Were you prepared for this kind of a scenario?
SA: We expected the domestic recovery to be gradual and anticipated that the problems in the financial sector would take time to be sorted out. So we positioned the portfolio accordingly. However, the crash in commodity prices and growth concerns over China have been more than anticipated and taking longer time to be sorted out.
What is your stock selection strategy and how is it different compared to peers?
SA: We look for long-term visibility of growth and efficient capital allocation while looking for stock ideas. Also, valuations relative to the sector and to the company’s own history are important factors to consider while constructing a portfolio. Our preferred choices are companies which invest in long-term growth, execute well and which are less dependent on external environment for growth.
How do you see the downfall of the markets around the globe, especially China, weighing on the Indian markets?
SA: We are witnessing outflows by Foreign Institutional Investors pressurising valuations in our markets. Obviously, the global slowdown would also delay the recovery in India as exports would take a long time to pick up. Given that our currency has also depreciated and that we are a major importer of crude, our export competitiveness may not get very much impacted by the devaluation of the Chinese yuan.
Do you think the government is rolling out enough reforms to accelerate growth in the economy?
SA: The government is trying to put in order many sectors and I would say progress is being made in power, defence, railways and roads. However, it has not been able to get political consensus around key bills, which is a dampner.
What is your expectation from the upcoming Union Budget?
SA: Over the years, the Union Budgets are becoming less of an event, as much more work on reforms and policy happens outside of it. However, market participants would look for a fiscal roadmap and overall government borrowing levels for the next year and the means by which the government targets to fund this.
What is your advice to investors in the current scenario with respect to investing in equity related instruments?
SA: The markets have corrected meaningfully since the beginning of the calendar year, and valuations are comfortable even after factoring slower economic recovery and lower earnings growth. Investors should start investing in equities, which as an asset class can give better returns over other asset classes like fixed income, real estate or gold.
This interview was first published on Karvy Value.