The rights of investors must be protected and No investor must see his capital destroyed, or his assets stripped, because of reckless transactions perpetrated by adventurous fund managers, said Nilanjan Dey, director of Wishlist Capital Advisors, in an interview with Ritwik Mukherjee. There should be strong governance codes to abide by and complete transparency and disclosure. No one can be reckless with investors’ money, he added. Excerpts:
What is your outlook on the Indian economy and capital market with the general elections round the corner?
The economy is poised to do well over the next 8-10 quarters because of a number of strong tailwinds that will drive our macros. Barring unforeseen circumstances, the new government will continue to spearhead reforms, which will unleash a lot of positives. I see significant developments for the services sector as well as limited upside for the manufacturing sector. Infrastructure-related spending will play a greater role. These will all combine to deliver good tidings over the next few quarters.
How do you see the impact of BJP’s poll losses on the market?
The security market did see some impact of electoral reverses. But these were fairly transient in nature. This is evident from the latest investment trends. Thus, there has been no long-lasting impact. The national polls will have far-reaching consequences than the state poll outcomes.
What are your main concerns about the market and why?
Internationally, bad news may shape up on the trade-war front. If my worst fears come true, we will surely not be insulated from any trade-related skirmish between powerful nations. Far from it – we will be a victim of an adverse scenario, which will be beyond our control. Any sudden increase in our import bill because of oil will add to inflationary trends. The same will hold true for other commodities. Strengthening inflation will hurt economy. Closer home, I will monitor inflows recorded by investors, especially domestic investors, into key asset classes. Any let-up on that front will not be good for our market.
How are institutions/FIIs looking at India now?
The US market is looking brighter for institutional investors and it will act as a dampener. These investors in their constant pursuit of higher returns will move out of emerging markets like India. This is already happening. The latest numbers will be an indicator of the trend. Also, such a trend will gather speed when the next rate-hike in the USA becomes a bigger reality. Developments over the next one-year will have to be monitored closely.
Are there some opportunities in the current market?
There is a strong case for select sectors, which include information technology, pharmaceuticals and automobiles. The financial services space has already shown great resilience after witnessing a correction in recent months. A few other sectors, including cement, sugar and engineering, will display considerable potential to grow rapidly. This year, the ardent stock-picker stands a good chance: he needs to allocate courageously in order to leverage on this growth
How do you see the next phase of MF growth in the country?
Mutual funds will grow in both size and stature. I am not referring to mere growth in asset base. That will be assured anyway – especially so because of the confidence shown by retail investors in fund houses. The latter, collectively taken, are a massive force in the market.
One, humungous quantities are flowing into the equity market on account of SIPs. Two, funds have become influential investors in debt securities issued by companies. Most importantly, funds today are repositories of trust. The average investor has started saving and allocating in an active manner. Today he appreciates the role played by funds in terms of fulfilling his financial aspirations.
How do you differentiate between traditional MF and hedge funds?
Differentiation will be on several critical fronts, particularly from operational and functional points of view. For a small investor, an MF will continue to hold its cutting edge – instant diversification, reasonable cost, professional management and low entry barrier. All these are guided by a strict set of rules. It will serve long-term interests of an investor and help him create wealth over time. A hedge fund will be far too nimble and ruthless. Perhaps ordinary investors will generally end up avoiding them. Hedge funds will, for all you know, be a conduit for only seasoned, bulge-bracket investors of a certain variety.
How should hedge fund strategies be ideally designed?
Investments by hedge funds will be guided by specifics. “Don’t lose money”, for instance, can be the cornerstone for every deal. Hedge funds in certain major markets are often billed as purveyors of insider information. And that is illegal. I hope the regulatory architecture in India becomes aware of that if ever hedge funds are allowed to have their way here.
At all costs, the rights of investors must be protected. No investor must see his capital destroyed, or his assets stripped, because of reckless transactions perpetrated by adventurous fund managers. I would like to make sure that there are strong governance codes to abide by. There should be complete transparency and disclosure. No one can be reckless with investors’ money. Therefore, a lot will depend on the manner in which governance filters are administered.
Where do you see the capital markets five years down the road?
I foresee the arrival of stronger market forces. The next few years will ensure a burgeoning of sorts – there will be more investors, issuers and intermediaries. Volumes will increase, costs will come down and laws will be stricter. The market will finally welcome long-term investors – there will be no shortage of short-termism, though.
The so-called “equity culture” will take a firmer shape in India, and there will be a whole new (and smarter) set of people who will invest in stocks for the first time. A lot of digitally-enabled transactions too will happen. The modern investor will trade on his mobile, on the go. Proper financial planning will take flight as well, aided by an army of trained planners. Advisory services in general will expand in terms of scope and acceptance.
I will not put any number for the index. But super large-caps will do well in terms of revenues. Their earnings visibility will only make them stronger as constituents of the index. The true leaders among them will have the potential to drive it to greater heights. The last quarter of FY19 is here, and the year-end results are only a matter of time. These are likely to set off the trend we are all waiting for.
Which sectors you would bet on today?
My bets include IT, finance, auto and pharma. IT services are at a critical juncture in terms of earnings potential and can benefit tremendously from global clientele. Finance has just taken off after passing through a rather damaging phase; government action by way of capitalisation will only help matters here. Auto and auto ancillaries will gain from positive developments in terms of bigger demand, reasonable fuel prices and cutting-edge marketing. Pharma is a call that seems to be a bit speculative. It has been a laggard for long and green shoots are getting visible. Mid-cap pharma will be the segment to watch out for.
How do you pick your own investments?
My own portfolio is a mix of standalone, high-conviction stocks as well as traditional blue chips that have delivered consistent returns. I rely on my own fundamental analysis of the concerned sector; typically, my understanding is shaped by the condition of the market, the dynamics of the business space occupied by the company, ownership pattern, transaction trends and raw ratios.