Wednesday, January 11, 2012

Optimism won't come back in a hurry: Anand Shah

The next three months would continue to be challenging for Indian shares, but there is a possibility of positives emerging from both local and global markets thereafter, says Anand Shah, chief investment officer at BNP Paribas Mutual Fund, in an interview with Mehul Shah. Edited excerpts:

Looking at the domestic and global events, where are the markets headed for in the next six-nine months?
From the last year to this one, while the challenges on the macro front remain, valuations have turned favorable. However, valuations alone cannot be a trigger for the markets to rally. Beyond three-six months, there is a possibility of positives emerging from both local and global markets. On the global front, we expect the uncertainty surrounding the European crisis getting resolved to a certain extent. On the domestic front, inflation is expected to decline, leading to interest rates being cut, along with measures taken by the government (we will have a Budget in between) to kick start investments and keep the consumption momentum going. In short, the next three months would continue to be challenging. But, given the current valuations, investors looking at India from a 5-10 year perspective may want to start investing.

What key positives are you expecting for the markets in the next few months?
We are not really expecting the optimism to come back in a hurry. But, one needs to be watchful about when the pessimism peaks. That would be the first step when the market would stop falling and show the first bounce. Because, today, the news flow, be it the local or the global front, isn’t getting better. We do not have a specific time horizon, but eventually, interest rates are expected to fall. Commodity prices should fall. Oil and metal prices should fall. That’s when the Indian consumption story will start kicking again. As the environment globally gets stable, even the foreign funds will start trickling in.

Analysts have been cutting the Sensex earnings estimates for FY13 and there could be further downward revisions. Do you think valuations have become really attractive?
Definitely, the markets are not at rock bottom valuations. While they corrected last year, we have segments that have appreciated and became more expensive. So, overall, price-to-earnings (P/E) ratios have not shrunk to levels for us to say we are at the extreme bottom. At the same time, the earnings downgrade cycle continues. So, while we are optimistic from a 6-12 month perspective, it doesn’t mean the market can’t correct further, given there is a room for valuations to shrink.

Which sectors you are betting on right now?
We like select companies and segments within the consumption space from a longer-term perspective. For example, telecom, which has continued to do well on the volume front, has now the pricing also looking up. Private sector banks and a few non-banking financial companies (NBFCs) that have their non performing assets under control may do well if interest rates were to fall.

Within the FMCG space, we are looking at some companies that have a significant pricing power, especially in the consumer staples space. We also like quite a few consumption companies, where the raw material pressures are coming down. With the depreciation in rupee, there may be segments within information technology (IT), pharmaceuticals, textiles that would benefit. There are stock picking opportunities in this market and we are trying to benefit from them.

Given the severe correction in stock prices, do you think there are opportunities for investors in the capital goods/engineering/infrastructure space?
Even as there are no blanket opportunities in the infrastructure space, there exist selective ones. Very clearly, what’s happening in the infra sector has a lot to do with the slowdown in the government or private capex, along with debt on their balance sheet, rising interest rates, global uncertainty, environmental issues, rising commodity prices, etc. Hence, a variety of factors have led to the correction in stock prices.
So, we are looking at all the factors that may have hurt the sector. We are definitely looking at select utilities and companies with assets on ground. Quite a few road projects look interesting.

Which kind of sectors/companies are a strict no-no in this environment?
Very clearly, we don’t like companies with stretched balance sheets — those that are undercapitalised and would need to raise money in this market. Such companies would be avoided at this point in time. Within sectors, we are looking at global commodities which are off our list. We have minimal exposure to metals. We are very selective within the banking space. Real estate is another segment we do not have exposure to. Also, companies with a huge exposure to capex cycle, like capital goods, are off our list.

Source: http://www.business-standard.com/india/news/the-optimism-wont-come-back-inhurry-anand-shah/461397/

MFs want breather amid spate of regulatory changes

Consistent regulatory changes over the past few years have started taking a toll on the Indian mutual fund industry. Though, most executives at fund houses admit that the steps are aimed at growing the industry, they complain in private that "there is no breathing space left ".
Earlier, soon after taking over as chief executive at Association of Mutual Funds in India (Amfi), HN Sinor had acknowledged the fact that regulatory changes were "too many and too soon", making industry unsettled.
"We have an astute regulator who understands the problem of industry and is concerned how to grow it. But problem lies when new circulars are issued and we wonder how to go about it," says chief executive officer (CEO) of a mid-sized fund house, who did not wish to be named.

UK Sinha, who took over Sebi's chairmanship last year in February, headed UTI Mutual Fund as CMD.

Adds another fund manager. "We are grappling with changes which have come in a very short span of time. The changes have thrown the whole industry's business model out of gear. We are trying to acclimatize with the new norms but it needs time and (we) cannot expect overnight improvement," he says.

Abolition of entry load on equity schemes was the turning point making distributors wary of selling MF products. Thereon followed stringent KYC norms, new debt valuation norms on weighted average market price, due-diligence of distributors, guidelines on transaction charges, mandate to banks to reduce their exposure in liquid funds to not more than 10% of their networth, KYC norms for foreign investors and the consolidated account statement.

Other chief executives, Business Standard spoke to, say it is hard to keep a count of changes. "I get confused amid so many changes and cannot keep track of them at a given point of time," explains a restless top official.

To a large extent it sounds true. For instance, different versions, conflicting interpretations, lack of understanding whenever Securities and Exchange Board of India (Sebi) puts up a circular has become too often. One of latest norms of single account statement is a clear example when fund managers had conflicting interpretations of the circular.

Industry's top CEOs, in a recent meeting with Sebi, requested that instead of continuous regulatory changes, a proper road map should be drawn up so that the industry is aware of the shape of things to come.

According to Dhruva Chatterjee, senior research analyst at fund tracker Morningstar India, "Fund managers are feeling the heat because of the bad year for equity markets and mutual funds. Most of the regulatory changes are in favour of investors. Primarily, barring a few, all are on marketing and distribution front which have hit the balance sheets of several fund houses."

Industry needs stability in terms of regulations rather than issuing circulars one after another, says CEO of one of the oldest fund houses. There should be cajoling and hand holding as these are initial times for the industry to grow, he further adds.

Another issue which fund managers cited and have recently apprised the regulator too is discussing the pros and cons before issuing statements. "Once circular is issued, it is hard for the regulator to take it back for whatever reason. Our point is, industry should be told and discussed with before any regulatory changes come up," he says.
Source: http://business-standard.com/india/news/mfs-want-breathing-space-amid-spateregulatory-changes/154893/on

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