Fund managers across the world are facing the dual headwinds of inflation and an increased risk of volatility. However, Rajesh Bhatia, the Managing Director & CIO, ITI Long Short Equity Fund, feels Indian markets would be able to withstand these dual pressures.
The company manages nearly $100 plus million in funds and Bhatia spoke about their strategy in the volatile markets.
Q. What is the size of the funds managed by AIF? Have you seen any change in the manner people invest or manage funds after the pandemic?
Bhatia: ITI Long Short Equity Fund, CAT 3, AIF, manages nearly $100+ million (Rs 800 crore approximately).
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Today, investors in India are confronted with a dual challenge. The first challenge is negative real returns in fixed income. The second challenge is around investing in equity markets, which are increasingly macro-driven and hence very volatile. To help navigate these challenges of negative real returns from fixed income and potential risks and volatility in equity markets, informed investors are moving their assets to more risk-adjusted investment strategies.
Savvy investors have become more aware of the risk post pandemic. They are now more inclined to back investment strategies that can protect the downside to their portfolio and yet make an attractive return. The allocation of risk-adjusted strategy like a long short equity fund has, therefore, seen an increase in the portfolios.
Q. How will the volatile rupee affect the performance of your company? Do you see any long-term effects in this?
Bhatia: Rupee volatility has an impact on various segments of the economy, giving opportunities to buy or sell stocks in specific sectors. We aim to be nimble in identifying shifts in trend and adjust our positions accordingly. There is no long-term impact on the performance of the fund.
Q. Indian markets have now turned volatile. How do you see the markets behaving in the rest of the fiscal?
Bhatia: We expect the Indian and global markets to remain volatile in coming quarters. Global central banks are trying to rein in spiralling inflation in their respective economies via rate increases and balance sheet reduction, which would affect sentiment on equity as an asset class globally. It remains to be seen how these central banks manage to balance growth risks versus continued high inflation.
Indian economy is relatively better placed with inflationary pressure expected to subside in coming quarters, though high oil prices and continued rupee depreciation pose risks.
Q. Will the inflation affect your strategy in exposure? Which sectors will you be concentrating more on?
Bhatia: Sustained high inflation impacts the quality of earnings as volume growth begins to taper off even as earnings growth may remain stable for some time. We are focusing on sectors/stocks which have exhibited reasonable pricing power over the past year and are still available at reasonable valuations. Another by-product of high inflation is currency depreciation which can potentially benefit export-oriented sectors.
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