Considering the current domestic and global scenarios, Sailesh Raj Bhan, Deputy CIO (Equity Investments), Nippon India Mutual Fund has some advice for investors
What is your outlook for the Indian equity markets in the short to medium term?
India’s economy appears well positioned for reasonable growth supported by normalizing demand and reviving industry. Policy reforms in recent years, huge underinvestment in capital spending, stronger corporate balance sheets, and a transition to a multipolar world can help manufacturing, exports, and capital spending , potentially creating a virtuous circle of growth. However, near-term market sentiment could potentially be affected by headwinds like the global slowdown, particularly in Europe, the US and China, as well as higher interest rates, higher energy costs , etc. After the recent sharp rise in equities, the market has re-evaluated and will keep pace with the recovery in earnings, as several re-evaluations have already taken place.
The Nippon India Multi-Cap Fund recently closed 17 years with a compound annual return of 16.42% since inception. Can you shed some light on the fund’s opportunistic investment style that has consistently outperformed broader markets?
The Nippon Multi-Cap Fund follows the investment philosophy of buying good quality companies that are growing at reasonable valuations. The framework is to avoid overpaying for growth unless justified by underlying cash flow growth. We avoid pure momentum bets where current valuations broadly reflect estimated medium-term growth. More importantly, the portfolio is constructed with a medium-term perspective and the objective is to take advantage of any significant market distortions without compromising the quality of the portfolio. Investing with high conviction, taking the right risk, not overpaying for growth and investing with a long-term view were among the main contributors to the fund’s long-term performance.
What changes have you made to your equity funds given the rise in interest rates and the volatility of recent months? Also, are you currently more geared towards growth or value stocks in the Nippon India Multi-Cap Fund?
The Nippon India Multi-Cap Fund follows the growth-at-a-reasonable-value philosophy with an emphasis on identifying quality companies with strong growth visibility. The attempt is to take the right risk without compromising quality and to invest early in the cycle to benefit significantly from the turnaround or recovery. In our view, it is extremely difficult to gauge very short-term or event-based market reactions and therefore we continue to build portfolios with a medium-term horizon in mind. Risk is managed through adequate diversification and a preference for quality companies at reasonable valuations with improved business prospects over high value companies given rising rates. The portfolio includes an optimal mix of established companies, potentially faster growing emerging leaders as well as a mix of cyclical and secular themes providing an appropriate balance.
In your view, what are the relevant risks facing equity markets in S2FY23?
Given the reliance on oil imports, the price of crude oil is a key risk to watch. Another challenge is the growing trade deficit of around $28 million, which has more than doubled in the past 12 months. A steeper-than-expected slowdown, especially a hard landing in the developed world, can affect global trade and investors’ risk appetite. However, in our experience, risks and opportunities generally go hand in hand and proper asset allocation and disciplined medium-term investing can go a long way to improving investors’ experience through market phases.
What are the top three emerging investment trends that you think will dominate over the next decade?
Long-term opportunities continue to emerge in many sectors given India’s low penetration per capita and the continuous reforms that are being implemented. Manufacturing and investment recovery, logistics, domestic pharmaceuticals, and the hospitality and travel sectors are important long-term growth themes.
How should retail investors manage today’s market volatility with mutual funds?
Volatility is the friend of a prepared investor. While the market may remain volatile in the short term given global shifts, the fundamental strength and demographic advantages of the domestic economy may play out in the medium to long term. As a result, retail investors can consider participating in equity-focused funds through laddered investments through SIPs or STPs. Since we believe broader markets can do well with current fundamentals, long-term investors can consider diversified strategies such as multi-cap or flexi-cap offerings for pure equity investments.