‘Redemption pressure for industry could rise’

A steady fall in the stock markets for some weeks has investors wondering what the eventual bottom could be. TAHER BADSHAH, chief investment officer (equities), Invesco Mutual Fund speaks to Swati Verma. Edited excerpts:

How do you interpret the recent market moves and where do you see the benchmark indices by end-March?

The broader equity markets have been showing weakness since nearly the start of calendar year 2018, in response to steadily deteriorating macro factors such as commodity prices, interest rates, the current and fiscal accounts, and currency. In this backdrop, elevated valuations, notwithstanding improving earnings growth, left very little room for error and is the key reason for the recent sharp correction in the market. The frontline indices could potentially see a downside of five to seven per cent from current levels, at which they will likely trade very near to their long-term earnings multiples.

The IL&FS contagion has hit banking and non-bank financial companies (NBFCs) hard. Should one use the correction to buy any of these stocks?

Correction in the NBFC space is likely to open interesting investing opportunities in the segment. However, it will be important to recalibrate the growth expectations from companies in this sector versus their recent past and reexamine valuations for such revised expectations in judging their investment attractiveness. NBFCs are likely to get meaningfully differentiated from one another on the strengths of their underlying business models.

Your investment strategy this year?

It has been largely led by bottom-up stock picking, helped by our proprietary investment framework and driven by individual fund mandates. Consumer discretionary, financials, (information) technology and industrials have been our focus sectors. Barring our asset allocation fund, our portfolio cash levels typically do not exceed five per cent under all circumstances.

Flows to mutual funds have moderated over the past few months. Do you see a trend reversal?

Investor confidence does appear to have been modestly dented in recent months, evidenced by some slowing in monthly flow into MFs, though not of any alarming magnitude. While monthly SIP (systematic investment plan) flow remains strong, lump-sum flows are likely to take a while for regaining momentum; this would coincide with receding market volatility.

Any redemption pressure in your schemes?

Our equities business has maintained reasonably strong positive momentum in recent months. Redemption pressure for the industry could increase, in a scenario of further meaningful macro deterioration from current levels.

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