Market has largely been factoring in further delays in the passage of GST Bill, says Nityanand Prabhu, Chief Operating Officer, LIC Nomura Mutual Fund.
In an interview with Amit Mudgill of ET.com, the expert said that sectors such as tyre, chemicals and metals are likely to take a hit from the recent devaluation of yuan by the Chinese central bank. Prabhu prefers auto, and consumer spaces: Excerpts:
ET.com: Investments in midcap funds via SIPs have been yielding higher returns than largecap funds. Midcap stocks have of late played a catch up, and even outperformed largecaps. Is the recent outperformance worrying you as nothing much has changed on the ground? Your advice to new investors?
Nityanand Prabhu: That is true. Midcaps always command attractive valuations at an economic upcycle, but get beaten down when the economy reverses. Largecaps avoid volatile swings that we often see in midcap stocks. We believe quality midcaps will continue to outperform largecaps. Ideally, new investors should hold a balanced portfolio, that is, allocate between midcaps and largecap funds.
ET.com: Nomura India launched a midcap scheme LIC Nomura MF Midcap Fund in February. The top 10 holding data suggest that the fund prefers auto and auto component and FMCG stocks. Can you tell us what makes you bullish on the midcap auto component space?
Nityanand Prabhu: Our bias to auto and auto component is due to the fact that the auto sector is showing some revival and consequently, this has helped auto components as well. Also, low metal prices have helped further improve margins. As regards FMCG, the opportunity in consumer space is significant, driven by penetration. The stocks are not cheap. However, supported by lower input prices and operating leverage, earnings growth is expected to be healthy.
ET.com: Tell us about LIC Nomura's plans to expand its product basket. Which are the fund categories in vogue? What funds can we expect from the mutual fund house in the coming days?
Nityanand Prabhu: Our objective is to provide a complete product basket to our esteemed investors. Apart from Retirement Benefit Fund & ETFs (multiple variants), we see opportunities in some sector funds which are likely to perform in medium-to-long term like Pharma, Private banks and Auto & Auto component.
ET.com: Any new strategy or event undertaken by your fund house to connect with customers or to boost the growth in AUMs/ AAUMs?
Nityanand Prabhu: Currently, our focus is on improving investment performance in order to maintain a stable and consistent performance. In addition, we have been undertaking various activities in improving investor connect and experience.
ET.com: Banks, construction, pharma and automobile are some of the sectors that have attracted inflows from equity mutual funds between January and July. What sectors are you, as a mutual fund house, betting on?
Nityanand Prabhu: We see opportunities in some sectors which are likely to perform in medium-to-long term like Pharma, Private banks and Auto & Auto component. If economic growth picks up, the mutual fund industry will continue to receive significant flows in equity asset class over a period.
ET.com: MF industry has been in a consolidation phase. Without getting into the details, I would like to point out that a foreign fund house last week sold its Indian business to an existing mutual fund house. Do you expect further consolidation in the industry?
Nityanand Prabhu: The recent consolidation in the industry predominantly is due to their global strategic alignments by the exiting entities. Further consolidation cannot be ruled out. However, all such consolidations are subject to regulator's approval, keeping investor's interest in mind.
ET.com: The monsoon session of Parliament has been washout. Is market factoring in further delays in the passage of key economic bills, given Bihar assembly elections are around the corner?
Nityanand Prabhu: The market has been factoring in such events and eventualities.
ET.com: The Chinese central bank has devalued renminbi against the greenback. What impact could the development have on the local currency, equities and fundamentals of companies?
Nityanand Prabhu: Local currency has fallen in response to Yuan devaluation. A risk is, other economies may also follow China model to boost exports to compete with China. This may affect Indian exports also. Yuan devaluation could boost Chinese exports and may impact domestic companies which are vulnerable to Chinese imports. Sectors like tyre, chemicals and metals are already face huge competition from Chinese imports and this will impact the domestic companies even further, unless the government intervenes with higher import duties. Sectors like textiles, in which India has gained an upper hand in recent years, may also face risk from Chinese companies.
ET.com: What about earnings? When will earnings cycle revive? Monsoon concerns, delay in the RBI rate cuts, China woes and political logjam in Parliament are some factors capping upside in the market. The US Fed also seems to be on track to hike interest rates in September. What is the outlook for the market?
Nityanand Prabhu: Macro risks mentioned above are clearly there. We are watchful about the same. We continue to remain focused on bottoms-up investments. Our approach is to select stocks based on quality and valuation. We expect near-market to remain range-bound.
