Last year was a nightmare only for those investors,who,in the euphoria of a bull market,ignored sound investment principles such as asset allocation,says Krishnamurthy Vijayan,chief executive officer,JP Morgan Asset Management India. As for 2009,he says in this interview to Suneeti Ahuja,it is a great time to start accumulating stocks of sound companies that are selling at close to,or below,book value today.
•2008 was a fairly bad year for investors. What is your outlook for the next year?
Firstly,I would like to say that 2008 was a bad year for those investors who got carried away by the booming markets of 2006-07 and forgot the basic principles for retail investors financial planning,asset allocation,and systematic investing. Otherwise for an employee or small businessman with a 10-30 year horizon ahead,2008 will be just another blip. Indeed,if they have followed the principles,2009 will be an opportunity that comes rarely a time when stocks of excellent businesses are trading close to,or even below,book value.
•What are the long-term growth drivers of the Indian stock markets?
Domestic consumption,infrastructure investment by the government or the private sector,and the relative insulation of the huge Indian salaried classes from the vagaries of the stock market are the key long-term drivers.
•And what are the near-term risks?
The key concerns for 2009 would be whether the governments,state and central,demonstrate a will to invest or encourage investment in the infrastructure sector; the ability of our financial institutions to look beyond the international crisis and facilitate local liquidity for commerce; the dramatic investment in the cost of private security for businesses on account of terrorism; and above all,the ability of the ground level bureaucratic machinery to translate legislative intention into micro-level facilitation of business.
•What are the specific risks to the performance of the stock markets in 2009?
The biggest event risk next year is the election and the probability of a fragmented coalition government. This could derail the process of infrastructure creation further.
The second big concern is the action that we may need to take in case terrorism escalates.
I believe other concerns,such as the time likely to take for a global revival and the overall demand slowdown,are normal business factors that tend to be cyclical. In fact,often these cyclical slowdowns have a cleansing effect on the system.
•What are your expectations regarding revenue growth and profitability from Q3 corporate results?
We expect that these would be worse than for Q3 last year. But expectations are not high in any case and we believe that disappointments are priced in already.
•FMCG,pharma and telecom were touted as the favourite sectors last year. Which sectors,according to you,will do well this year?
We adopt a bottom-up approach to stock picking as compared to a top-down approach and hence dont particularly focus on specific sectors. We use our global Pacific Regional Group (PRG) process of investing for India and follow a collaborative approach to research and investing a process that reduces the impact of individual bias and improves the quality of decision making. Since we arrive at decisions through a collaborative process,we have no ego invested in our stocks. We may exit a stock if our hypothesis proves wrong,but our conviction based approach demands that we be disciplined enough to look through volatility unless the above is true.
•How do you expect foreign institutional investors (FIIs) to behave in 2009?
FII is a wide term referring to institutional investors of various hues,ranging from pension funds with a 50-year outlook to aggressive funds with a 50-day outlook. Their behaviour would vary based on their investment objectives and cash flows. Increasingly,as India gets recognition as a strongly regulated and efficient market,their behaviour tends to be driven by their fund management mandate and not by fears triggered by events with a short-term impact.
I expect that long-only FIIs will tend to invest as they start seeing inflows. With Indias financial system having stood the test of the crisis,I expect pension funds to increase allocation to India over the medium term.
After seven months of being net sellers in the market,in December FIIs were net buyers. This could be another indicator that liquidation pressures have eased and FIIs are looking at return on investment as the criterion again.
•With interest rates falling,should one invest in income funds or gilt funds? Or both?
Investors should look to invest in bond funds with a 12-month plus view to maximise returns. As interest rates fall,bond prices appreciate yielding better returns to investors.
•Any plans to expand the product portfolio?
Our endeavour during 2009 will be to have a complete suite of products across categories. We currently have three equity funds,two liquid funds,and one bond fund in our product basket. We have just launched an open-ended equity-linked savings scheme (ELSS) – the JP Morgan India Tax Advantage Fund. Depending on market conditions and investor mood,we could launch a few of our international funds in the Indian market during the coming months.
•Any message for equity investors?
While it is too early to make positive predictions,but as things get back to normal slowly,I believe the environment will emerge changed,but better. As an investor,I would suggest that this is a good time to begin systematic investing: after all,why not begin gradually stocking up for the future during this discount sale.