Strong opportunities are present in the capital markets today. The earnings season is expected to be good, which will witness a rise in profits for companies. Moreover, consumption is also expected to rise, says . Somenath Chatterjee, executive director, Waytogo Consultants, in a interview with Ritwik Mukherjee. Excerpts:
What would be the impact of the interim budget on the market in the short to medium term?
The market was volatile on the budget day but ended positively. The stock market sentiment will be upbeat on consumption boost and tax reliefs. Majority of the top gainers would be the stocks that will benefit from the boost to consumption. In the short term the markets would be range bound. However general elections would be a crucial point for the medium term outlook.
What is your outlook on the Indian economy and capital market with the elections round the corner?
The finance minister has given a roadmap for the next 10 years on the economy. It’s has set a progressive and forward-looking tone to believe that India can become $10 trillion economy. There will be rise in consumption in near future. However the stability of the government would play a crucial role in determining the growth of the economy. Though the outlook is very positive and lot of reforms have been implemented but the election results would be a key factor.
What are the main concerns about the market at this point of time and why?
The budget has been sentimentally positive. But however markets would be led by next three immediate events — next week monetary policy, earnings growth, and the expectations of the outcome of the general elections.
How are Institutions/FIIs looking at India now? Will this outlook continue?
The outlook of FIIs has been positive and more investments will follow. However the stability of the government would be an important point in the medium term.
Do you think there are some opportunities in the market in the present situation?
There are strong opportunities in the capital markets presently. The earnings season is expected to be good which will witness rise in profits for companies. Also with additional cash in hand there will be consumption which be a boost in the economy. The stock market will do well in the medium to long term and thereby provide good opportunity.
How do you see the next phase of mutual funds growth in India?
The mutual fund industry has a huge growth potential as Indian household savings will increase. There is already a shift in household savings in form of financial savings. Mutual funds help in diversifying the portfolio for a retail investor. With the stock market doing well along with additional household savings it will see a huge surge. SIPs would help the retail investor to achieve long-term financial goals.
Where do you see the AIF industry and what is the future?
The capital put in by the alternative investment fund has been rising over the past years. The industry has been growing at a rapid speed ever since the regulations were introduced by SEBI in 2012. AIFs are a class of pooled in vehicles for investing in real estate, private equity and hedge funds and many such funds are registered with Securities and Exchange board of India (SEBI) since 2012. With the rise in investment capital in India, the ongoing bullish equity market and increasing FPI and FDI investments the outlook for AIF industry is very positive. Though it is too early to judge the returns from the funds already in the market, as of this moment the future of AIF industry looks very promising.
How do you propose to differentiate between traditional MF and hedge fund space?
Both mutual fund and hedge funds are managed portfolios. Hedge funds are managed more aggressively than their mutual fund counter parts. They are able to take speculative positions in derivative securities such as options and have the ability to short sell stocks. This will typically increase the leverage and thus the risk of the fund. This also means that it’s possible for hedge funds to make money when the market is falling. Mutual funds on the other hand are not permitted to take these highly leveraged positions and are typically safer as a result. Another key difference between these two types of funds is their availability. Hedge funds are available only to a specific group of sophisticated investors with high net worth. The mutual funds are available to all with minimum amount of money.
How should hedge fund strategies be designed?
The hedge fund should be targeted to the ultra HNIs and family offices. In hedge funds the managers skill and risk management is much bigger as a part of the evaluation process. Also one needs to check the extent of leverage the fund will employ. In hedge fund strategies there is a great temptation to keep scaling up leverages to get higher returns. But a good hedge fund manager will push back and maintain a reasonable level of leverage or gross/net exposure.
Where do you see the Indian capital market five years from now?
Sensex should go up to 39000 and Nifty to 12000 in 2019. The Indian capital market is strongly placed and with the increase in consumption and boost in key sectors it’s going to grow steadily. The corporate earnings should increase. There is a large young population in the country which will positively impact the investment in the capital markets. The outlook for next 5-10 years remains very positive and strong.
Which are the sectors you would bet at this point of time and why?
There is a boost provided to sectors in domestic consumption like automobiles, consumer staples & durables, real estate, building materials, retail focussed banks and finance companies.
How would you pick up your own investments?
I would be looking at a portfolio mix with a higher amount in equity. Firstly I focus on the sectors which have a high growth engine and then look at stock specific. Though I study the technical charts but my decisions would be primarily on the fundamentals of the companies. The company background, business models, market opportunity, promoters play a significant role in decision-making. I also invest though mutual funds which gives an opportunity to diversify the portfolio. There are good Funds available which are consistently giving high CAGR.
How would the investors handle their investments for near future and advice to retail investors?
The most important thing which a retail investor should have is patience. It’s important to stay invested in blue chip stocks over a minimum 3-5 years time horizon to get good returns. There will be an increase in domestic consumption in the near future and the investors should put their fresh allocations to these sectors. The retail investors who have invested through mutual funds or direct equity should hold on. I also suggest investment through SIP route, which brings investment discipline, and achieve financial goals.