We are reducing exposure to defensives: Navneet Munot
Amid recent market rally, international rating agency S&P's note on India dented sentiments for a day. Indian stock markets resumed upward move on hopes of interest rates cut from RBI and anticipation of government coming back into action. However, RBI kept rates unchanged thrashing market's expectations given the prevailing high inflation. In a conversation with Chandan Kishore Kant, the chief investment officer of SBI Mutual Fund, Navneet Munot, says not much attention needs to be given to S&P warning as it won't impact his investment decisions. According to him this is the best time to invest in equities. Edited excerpts:
Are you expecting heavy intervention from the Reserve Bank of India?
RBI gets over-burdened on both sides, in terms of dealing with inflation as well as slowdown. The larger responsibility should lie with the fiscal action. Lack of policy actions and execution from the government are the key reasons behind deceleration of growth. So, that's where the larger response is needed. RBI can only support those initiatives through monetary policy but cannot be the big driver. Given the pressure which is building because of the acceleration in slowdown, I think some actions would be initiated which the markets have not been expecting at all.
What's your reading out of recent movement in equity markets?
Stock markets had turned too bearish. Now, there are signals that situation in Europe may not be as worse as was feared earlier. That's giving hopes to the markets and we saw a little recovery too. Having said that, we must acknowledge that economic data has been coming quite weak. However, my sense is that it is going to lead to some action from the government which was missing, and caused concerns for investors.
Which sectors you would like to put money in?
We are far more bottom up in our approach than taking a top down call on sectors. We like consumer space, but there are lot of companies in the sector where the valuations have become quite rich and we have trimmed those holdings. But we have been structurally bullish on consumption theme. So far, we had the preference to have more defensives in our portfolio like health care, consumer goods and non-cyclicals. But now our incremental bias is to add cyclicals and rate sensitives. Our view of staying with the consumption and exports played out well. Also, the over riding factor was focusing on companies with stronger balance sheets and visible cash flows. That played out very well. Going forward we will look at adding beta in the portfolio and are in a process of reducing exposure to defensives.
Do you agree with what S&P had to say about India in its latest report?
Honestly, I do not agree with that. If we look at the debt-to-GDP ratio of several other economies, which enjoy higher ratings, India is definitely structurally poised for higher growth than those economies. Putting these factors together, India does not deserve a junk status when several economies in Europe which are at the brink of default enjoy higher ratings.
Would the warning in the report impact your investment decisions in current market situation?
Not really. I don't think we would pay so much attention to it. Historically we know that rating agencies are behind the curve almost everywhere. I think markets are much smarter in terms of valuing these events and realities.
What's your outlook for metals?
Generally, we have been staying away from the metal space. And that helped us since most of the metal companies did not do well. We are still cautious on metals as we expect more severe slowdown in China. Though some of the domestic plays could be worth looking at.
Is flows in equities impacted mainly due to higher returns in other asset classes?
One of the deterrents towards getting inflows into equities is that over the last couple of years investors have not made money in equities which has impacted sentiments. The alternatives, like fixed income, are offering decent returns. Bulk of the savings has gone into real estate and gold. Historically, we have seen when fixed income returns look very attractive relative to equities, that is probably the best time to put money in equities also. And I think we are currently in a similar situation where equities look good. It's a right time to build equity assets and one should start investing in equities.
But cancellations of equity investment through systematic investment plans (SIPs) are on the rise.
Investors must keep a discipline of asset allocation and I think equity markets will offer decent returns as risk-reward ratio looks good. Valuations look reasonable compared to historical averages. I strongly advocate that investors should not stop SIP and continue their faith in the potential of equity markets.