‘This is a good time to invest in equity markets’

Rising oil prices and a sliding rupee have rattled the markets over the past few weeks. CHANDRESH KUMAR NIGAM, managing director & chief executive officer, Axis Asset Management Company, tells Puneet Wadhwa that the recent fall presents an opportunity to investors who are yet to invest or have under-invested in equities. Edited excerpts:

Do you expect the markets to go down further?

That’s a difficult call to make at the current juncture. It is not linked to this particular event (IL&FS crisis). The markets can sway either side. That said, the last fall has given an opportunity for investors who still are not invested or under-invested. They can now change the asset allocation accordingly. This is a good time to invest in the equity markets.

What has been your investment strategy amid the recent market turmoil?

Regarding equities, we have been holding some amount of cash and this was more in response to the upcoming state and general elections that have created some amount of uncertainty. We thought there could be some volatility. The recent IL&FS event came as a surprise. We are putting that money to use right now.

Why are you are coming out with a new fund offer (NFO) at a time when the markets are under pressure and flows from mutual funds into the equity segment are slowing down?

We are essentially a fund house with a growth- oriented investment philosophy and we believe the right way to invest for long-term wealth creation is to buy high-quality growth businesses and hold them for a long period. That’s essentially what is reflected in all our holdings. Given our mindset, we believe it is a good opportunity for investors looking for an investment solution that captures Indian and global opportunities. The new fund will invest around 65-75 per cent in India (equally split between large- caps and mid- caps) and the balance in global large- cap high growth businesses. This gives investors a good opportunity to diversify risk.

Mutual fund flows into equities have been on the wane. Are investors concerned about the market outlook now?

I don’t see this as a concern. What we need to understand is that the equity markets are volatile. Index levels can fluctuate with developments locally and abroad. Recently, the market participation had become very narrow with only a handful of stocks participating and pulling the benchmark indices higher. One needs to accept the reality that this asset class gives much higher returns; the cost one needs to bear is volatility. It was never expected that monthly flows would hit four or five times the gross flows that we saw in a year till a few years ago. That said, the long-term trend seems to be reasonably good. The good thing is that flows into systematic investment plans (SIPs) remain healthy and are continuing to grow. All this will lend support to the markets in the long run.

The markets have been caught unawares as regards IL&FS amid falling rupee and rising oil prices. Are you facing redemption pressure in any of your debt and equity schemes?

Actually, none. There is a bit of an over-reaction in the markets. There is some redemption happening in liquid funds, which anyway happens in the September quarter. Anyway, we all are reasonably prepared to handle all quarter-end outflows.

Your current overweight and underweight sectors?

We are very bullish on the financials space — whether it is private sector banks, non-bank finance companies (NBFCs), housing finance companies (HFCs) or retail NBFCs. We are really gung-ho on these sectors. I won’t call it an overweight, as its contribution to the index is also very large. We continue to believe the financials, as a sector, still has a long way to go. In the equities segment, we do not have exposure to the kind of companies that are being hammered or talked about in the market. Our exposure is to high-quality, high-growth, good management and healthy RoE (return on equity) companies. We may actually be buying some of the financialsector companies right now.

How many hikes do you expect from the Reserve Bank of India (RBI) over the next few months?

Over the next three-four months, we can expect the RBI to hike rates by 25 to 50 basis points (bps). The markets, however, are already discounting this. If one looks at the 10-year government bonds or corporate bonds, the yields have really shot up. Irrespective of what the RBI does, I expect the yields to come off. In my view, this will not have any impact on the debt markets.

WE ARE VERY BULLISH ON THE FINANCIALS SPACE — WHETHER IT IS PRIVATE SECTOR BANKS, NON-BANK FINANCE COMPANIES, HOUSING FINANCE COMPANIES OR RETAIL NBFCS. WE ARE REALLY GUNG-HO ON THESE SECTORS