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Journalism of Courage
It has been a tricky year for equity investors. While markets moved up significantly since the beginning of this calendar on the back of FII inflows,even the fund managers did not expect that. Anup Maheshwari,head of equities and corporate strategy at DSP Blackrock Mutual Fund told Sandeep Singh that he would expect a correction of 10-15 per cent to get the desired margin of safety to enter the market. Excerpts:
Your gold fund was launched with a bang in 2007. How do you see gold now? Are you still bullish?
The momentum seems to be over now as far as gold is concerned. Like all commodities,gold has a cycle. It has had a nice run over the last decade but we are entering into a mode where it is going into a long correction phase. I dont think that it will collapse but clearly,the speculative momentum towards gold has moved out. However,I think there is value in holding gold from an asset allocation point of view.
How much risk do you associate with global money printing continuing?
It is a risk that everybody is highlighting. Because of so much easy money and rates being very low,a lot of money is still moving into fixed income. There is bubble developing in the fixed income category and there is this fear (its a chicken and egg situation) that if you dont print,you will create a bit of crisis in the market because there is so much money there and if it starts moving out,it will be very disruptive.
Equities have seen a sudden spurt. How would you position yourself in this market both as a fund manager and as an investor?
As a fund,our decision is very simple. We stay invested and we dont take market calls. We also dont want to readjust our portfolio because it is practically impossible to do big readjustments for anybody,as liquidity is low and asset sizes are fairly high. You cannot take short-term calls as there are too many variables playing right now. At an individual level,I would want to increase my equity asset allocation at this time but I am not sure if I would do that now. In a range like this,the simplest thing to do is SIP,but for somebody who is astute enough,it makes sense to look for corrections to buy. Personally,if I have to allocate lumpsum money into equities,I would wait for a correction.
Are you concerned over valuations?
At company level,we are concerned not about GDP growth but corporate earnings growth. About 50 per cent of the index is in reasonably defensive businesses and it can deliver about 20 per cent growth. The question is will the remaining 50 per cent add to growth or take away. While commodities may not decline further,telecom is expected to pick up and auto will pick up too. This means you are going from 8-10 per cent of earnings growth to maybe 12-14 per cent.
If earnings are picking up and rates are falling,it is only a good combination for equities. But with markets trading at 16 PE,there is not enough margin of safety. Ideally,if you have this sort of earning and interest combination with markets at 13-14 times,it is easier to talk about equities. The thing is that the markets kept going higher on account of global flows and some other reasons.
Do you think the global inflows caught everyone by surprise?
Nobody anticipated $13 billion coming and not all of it is frankly understood even now,but it seems to have had some impact.
How much correction would be good and do you see that coming?
Taking a rational call,I would want this market to be down by 10-15 per cent in order to feel more optimistic. It could. I think it could fall if you have a bit of perk up in rates globally. The fact that the volatility is at a very low level,a reversal would mean that equity will correct. So you should have a global equity correction of 10 per cent to get your volatility levels back at normal levels.
How do you see the promoters behaviour and corporate governance practices?
The bigger challenge for fund managers is to make sure we avoid lemons and there are too many lemons in the system. Also,when you analyse a corporate,you tend to take balance sheet at face value but it is becoming increasingly difficult to take balance sheets at face value. A lot of the numbers suddenly go out of the window and you dont know what happened.
Thats the challenge and thats why the desire to own good quality has become disproportionately higher.
How do you see PSU banks that seen a rise in NPAs?
While restructuring is still there,now they are steady and not growing. They have been punished and most of them are quoting below their book values now. If incrementally restructuring levels are steady and interest rates head lower,it gives some relief to the borrowers and banks and eventually that is a good sign.
In the long-term it is an inherent problem with public sector banks in the way they lend and they keep writing-off but from a stock perspective a good amount of that is already priced-in. So I think it is an opportunity in that sense.
