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BW Businessworld

Headless Chicken

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PVK Mohan may be underweight in financial sector stocks, but the last few days has seen him adding frontline banking stocks to his portfolio. In the same breath, he has trimmed his position in automobile stocks despite being overweight on the sector. The reason: valuation. "We are picking up stocks with strong balance sheet and secondly stocks which leaves some upside for us. Though sectors like IT, pharma and consumer are doing well, the stocks don't come cheap," says Mohan, Head, Equities at Principal Mutual Fund.

Speaking to Businessworld, Mohan feels the Indian market is lacklustre because it lacks conviction and that is the reason why there is no participation. Though global crisis has been a cause of concern, he feels it is rather the policy paralysis in India that has restricted the upward movement in the market. Mohan is of the opinion that though all headline news in negative, Indian market will
remain rangebound within a narrow band over the short-term and doesn't see it break the recent lows in the near-term as most of the negatives have got discounted in the price. However, a clear trend will emerge only in end June and starting July after the presidential election in India and a clear picture emerging on the monsoons.

Meanwhile, in this unfriendly environment, he feels investors with one year view should stick to frontline companies as the risk-reward is favourable towards large-cap than mid-cap stocks.

Excerpts from the conversation:

Do you think it is a great time for investors to invest in equities? And why?
It is a challenging time given the Euro-Zone crisis, slowdown in China and back home a slowing economy, sticky inflation and lack of policy push. However, valuations are not demanding and offer a good entry point for long term investors notwithstanding the near term volatility.

With rupee at its all-time low, what is your view on the currency and its impact on the equity market, economy and inflation? What are your concerns for the Indian equity market?
The rupee has been impacted by India's large deficits – fiscal and current account. It was expected to weaken but the sharp depreciation in such a short time has been a negative surprise. A weak rupee adds to inflationary pressure, especially on oil, as we import the bigger part of our requirements. The concerns for the Indian equity market are a slowing economy, sticky inflation and lack of policy push.

What is dragging the market and what is your overall view on the equity market for the next three to six months?
A challenging outlook for the global economy due to Euro crisis, slowdown in China, a slowing Indian economy with a large deficit and a political environment which has made policy making challenging. I see the market remaining rangebound in the near-term with the Sensex not breaking its recent lows as well as it's not going to see much upside until the global situation improves.

Do you think the RBI should be interfering in the currency market? Do you see any rate cut happening in the near-term and by what per cent and why?
We would expect the RBI to intervene in case of sharp volatility or significant movements in short periods of time. Given the stickiness of inflation and lack of steps to contain the large deficit, we believe there would be no rate cut in the near term.

What is your view on the overall financial market? Do you think the crisis in Europe as well as the US is behind us and why?
The overall financial markets are under a stressful phase due to the challenging global environment. The Euro-Zone crisis is far from over and we need to monitor the situation in the period ahead for further developments.

What is your view on gold and crude oil?
Given the challenging global environment, we would expect commodities to be under pressure.  However, gold prices are also influenced by currency movements which are difficult to predict.

In current market where will you advice investors to invest? (Any short-term strategy). Don't you think it's better to be sector and market-cap agnostic in this market or stick to the large-cap stocks. What's your view? 
In the current environment, we would recommend investors to take a long-term view of the market. A large-cap fund is suitable for investors, whereas looking for portfolio stability and steady returns, whereas investors looking for slightly higher returns and with a longer investment horizon — say beyond three years — could consider a mid-cap fund.

At Principal Mutual Fund what has been your current strategy in investing in equities? How much of an inflow are you receiving in a day? Of which how much are you investing in equities? If you are investing in the equity market which are the sectors that you are purchasing stocks and which ones you are avoiding?
We remain focused on identifying companies with good growth prospects over the next 2-3 years, available at attractive valuations.

In the current environment, we are slightly more bottom-up in our approach given the macro challenges. Sectors that we are overweight include pharmaceuticals, auto & auto ancillaries and media. Sectors that we are underweight include metals, cement and energy.

Where are you investing your money in this market?
I continue to be invested in the market, largely through equity mutual funds.