Markets have moved to fair-value zone

The Extel Survey began in 1974. They run market surveys and produce bespoke studies for clients worldwide helping all three sides of the investment community to identify excellence and inform investment decisions. The survey was conceived with the idea of collecting views and votes from fund managers on the services and advice they were getting from research analysts at stock broking houses. In 1999-2000 the Extel Survey was acquired by Thomson,now Thomson Reuters.

For the Buyside rankings,all votes for Buyside firms and individuals from either sell side or quoted companies was firstly collected for sector-by-sector rankings and then used for overall aggregates. All votes received from these firms are calculated automatically to form a single submission from the firm,and then weighted to reflect the market position and importance of the firm.

The survey is set apart by its non-biased approach. Since the voting universe is not unveiled,it eliminates bias or influence from Buyside firms.

Out of 317 Buyside firms nominated for the survey,ICICI Prudential AMC is the only Indian asset management company to figure in the list of 25 fund management firms in Asia. It was ranked 20th in the survey. The company has moved up the list from 22nd position in the 2008 survey. Moreover,Sankaran Naren,chief investment officer,ICICI Prudential AMC was ranked second out of 60 individuals across Asia in the Best Individual in the General Equities/Strategy category.

In your view,what factors led to your firm being ranked among Asias top 25?

Our commitment to a disciplined investment process probably made us stand apart. We have evolved over the years and follow a disciplined investment process that is at par with global standards. It enables us to generate optimum risk-adjusted returns. It is this concerted effort towards achieving excellence in investment management that has helped us facilitate our investors objective of wealth creation and enabled us to build trust and goodwill.

The Sensex has corrected almost 1,200 points since the beginning of this calendar year. What are the factors exerting downward pressure on the markets?

It is difficult to predict short-term market movements. However,the recent fall has been in sync with similar reactions in other emerging markets.

Fundamentally economic indicators suggest improvement in the economy,be it GDP growth rate,IIP growth rate,imports in December 2009,exports growth in November and December 2009 or corporate tax collections in December 2009. The recent hike in cash reserve ratio CRR was largely expected by the market. With adequate liquidity available,there is no immediate concern about significant firming up of rates.

As for valuations,we are transitioning towards FY2011 earnings. With the recent correction,markets have moved from fair value-plus zone towards fair value. From here on the markets will closely watch the budget and the governments borrowing programme. Also execution efficiency in infrastructure development is expected to set the tone of the market and the economy in times to come.

What were some of the positives and negatives to have emerged from the December quarter corporate results?

Overall revenue growth 29 per cent in Q3FY10 and Ebidt growth 29 per cent during Q3FY10 was better than expected for the Sensex. Net profit growth was 17 per cent during the quarter for Sensex companies. Overall barring PSU banking,real estate and select stocks in capital goods,the results were in line or better than expected. Even on a broader basis beyond the Sensex earnings were encouraging.

Do you see results improving further from here? What factors are likely to create headwinds in future?

In the past year corporate earnings have been supported by falling commodity prices,high liquidity and low interest rates,apart from the fiscal stimulus. In future earnings will have to withstand tight liquidity,rising rates and withdrawal of fiscal stimulus.

The interest-rate cycle has turned with the recent monetary and credit policy. First,do you expect the quantum of rate hikes to be drastic or mild during the year? And two,what impact are rising rates likely to have on the markets?

We believe that the interest-rate cycle is going to depend more on the fiscal consolidation roadmap that will be presented in the upcoming budget and its proximity to investor expectations. As for the CRR hike,while it will reduce liquidity,there will still be sufficient liquidity in the system which,including the governments surplus,is pegged at around Rs 1,20,000 crore. Moreover,while the policy did indicate active liquidity management,it has also signified that RBI will continue to track growth,thereby indicating that the interest rate movement,though having an upward trend,will be gradual.

As far as the market is concerned,the bond market was already factoring in a 50 basis points bps CRR hike,which was overshot only by 25 bps. The equity market was looking at policy action to cap inflation. This has been addressed by the hike. So while RBI has provided the market support by coming through on expectations of capping inflation,the baton has been passed over to the government to present a budget that will provide a roadmap for fiscal consolidation and help long-term growth.

Which two sectors do you expect will do well in the next one year?

We believe that the infrastructure sector has the potential to outperform this year,provided execution efficiency improves . The infrastructure sector is key to the economys growth and had also underperformed last year. Given the focus that is expected to be given to infrastructure to sustain growth,we expect this space to do well during this year.

Another space where valuations are still good is the telecom sector. Price-based competition has led this sector to underperform. But given the sheer opportunity for this sector to increase penetration and grow,and its current valuation,it has become attractive for long-term investment.

This apart,we believe that given the valuations,2010 is going to be a year where bottom-up stock picking will provide outperformance and help improve return potential.

Any advice for investors?

My advice to investors is to follow their asset allocation effectively and sincerely as we strongly believe that efficient asset allocation has the ability to capture upside and cap the downside effectively by removing the emotional bias out of investing and making it fundamental and rational. Further,mutual fund is a category that has the ability to provide investors with good risk-adjusted returns,which they need to capitalise on. However,investors need to be patient and take a long-term view on equity investments to be able to create long-term wealth for themselves and their families.

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