Growth Environment Remains Weak In Near Future Interview with Sunil Kumar Singh

Ankur Arora, Associate Director, Fund Management, IDFC AMC, says given the weak growth scenario, markets focus is going to be on companies that have strong balance sheet

Ankur Arora joined IDFC in March 2012 and has been managing IDFC Classic Equity Fund since then. Prior to joining IDFC, he worked with ING Investment Management as a fund manager and before ING he worked as Associate Analyst-Telecom and Media with Macquarie Capital Securities. He also has had stints with UTI Asset Management and Evalueserve prior to joining Macquarie Capital Securities. In an interview with Sunil Kumar Singh, Ankur explains the current economic conditions, equity market outlook and what investors should expect in the future.

The BSE Sensex and NSE Nifty indices touched their all-time high on Dec 9 before a little bit of profit booking erased gains in the second half. Do you believe the euphoria over BJP win in the Assembly elections has played out and the market may see more downside going forward?

Equity markets in the last two years or so have done reasonably well in spite of no significant movement in the underlying economy. Short-term euphoria due to elections aside, market movements will be impacted by the performance of the underlying economy in the coming months. As we cross the hump of general elections in 2014, there is hope for improved economic activity in the country which should augur well for the equity market.

Is the market reading too much into US Fed Reserves taper talk and is too skittish about it? Strong FII flows into the Indian markets have helped maintain the momentum of equity market over the last couple of years. Any news impacting this regular FII flow will have an impact on the market. Having said that, we are still talking about tapering and not really consolidation of Feds balance sheet. Till the time Fed reduces its bond buying program by a substantial amount, it is unlikely to make a huge difference in the medium term.

Do you believe concerns over weak macros, policy execution, high CAD and weaker rupee have been factored into by the market and the eye now is on the outcome of the General Elections in 2014? Policy level delays have hurt the Indian economy in a big way over the last couple of years. With election around the corner, it is unlikely that any big policy action will be taken in the next few months either. Thats the reason market is waiting for the general election for a direction. However, it will be naive to assume that underlying challenges facing the Indian economy have vanished and election is the only factor driving the market in the near future. Any deterioration or improvement in the underlying economy will be promptly reflected by the market.

What are the sectors do you believe are fairly valued and further upside seems limited? What value picks do you think there could be across sectors going forward?

In our portfolios, we are quite sector-agnostic at this point of time. Instead of focusing on any particular sector, we are looking at business opportunities across the sectors. Our endeavour is to look for stable businesses with minimal leverage that generate healthy cash flows.

The rise in bond yields in the past couple of months has been attracting investors to fixed maturity plans (FMPs). Do you believe it is the right time for retail investors to switch from equity funds and invest in debt funds?

With bond yields running at around 9%, it does become quite lucrative for an investor to look at debt funds in the short term. However, an investor should to look at his asset allocation based on his risk profile and investment horizon. We believe equity investments should be done with a long term horizon and short term volatilities should not impact the asset allocation of an investor. Over a longer term, we believe equity markets should be able to deliver returns commensurate to the risk of the asset class.

A large chunk of mutual fund investors in India are concentrated in big cities and metros. What strategies you have in place to tap investors living in towns or, what is termed as, B15 cities? Our approach of reaching to investors is through simplicity of products, timely information dissemination and investor literacy initiatives which we do across the country.

What is your reading of the economy and market going forward in the next 6 to 12 months? The overall growth environment remains weak in the near future. While there may be some sequential pick-up in second half of the financial year largely owing to better agricultural output, the momentum on services sector remains weak and job losses continue in the organized services. Additionally, government will have to compress spending in the months ahead in order to contain fiscal deficit just as it had to last year. Furthermore, the relatively tight interest rate conditions have stalled banks from cutting lending rates. Quite the reverse, banks have started hiking rates again right in the middle of the so called busy season on credit. Given these headwinds, any sequential momentum on growth is likely to be modest. In this weak growth scenario, market is likely to focus on companies that have strong businesses, have strong balance sheet and strengthening their competitive positioning.

Irrespective of the overall market movements, companies which are able to deliver consistently on these metrics will be rewarded in the market place. Learn more at Best Equity Research Firms in India, Best mutual funds to invest in 2013 in India, Today's commodity market news in India