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'Market To Touch New Highs By March 2013'

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In the absence of a downgrade and implementation of the reform process, the Indian equity market can be expected to touch a new high by March 2013, says Akshay Gupta, managing director & CEO, Peerless MF. He feels the equity market can surge 15 per cent from the current levels on back of FII flows. However, he is fully aware that there are a lot of issues that can spoil the party for the Indian markets. Efforts from the government will dictate the trend in the next year. “This time December and January FII flows will hinge on the government's implementation (of the reform process) and if that fails, FII money will not flow in next year,” says Gupta who feels all eyes will be on the winter session of Parliament which can be the next trigger for our markets.

Excerpts  from the conversation:
 What impact do you see on the overall P&L of the mutual fund with the new Sebi norm coming into effect that restricts MFs from having multiple plans in their schemes as well as on the expense ratio?

On an overall basis, for the long term, these are changes that benefit the P&L of the MF industry in general. Obviously, since Peerless Mutual Fund is a sub-set of the industry, it will also benefit. In the short term, re-adjustment will need to be made for single plan structure. It is expected that loss of revenue will happen in the fixed income schemes, where multiple plans existed, which gave leeway to the AMCs to charge expense ratios more flexibly.

What would be the strategy of Peerless MF to grow its AUM and investor base? How much are you investing in the business? So far how much have you invested in the business and when do you plan to break-even?

Strategy of Peerless is very simple – “Customer is king”. From the inception, customer centricity has been our focus. Business numbers like AUM and investor base is a consequence of this broad strategy. Getting more granular, we are focusing on creating new customers in untapped geographies through vernacular delivery. We have more than 40% of our AUM in retail-oriented schemes from non-top 15 towns, which is also the focus of regulator. This has been our strategy since inception. On the institutional side, our strategy is to provide few and appropriate solutions of cash management and investments to customers. We do not believe in launching unnecessary products to confuse customers. Thus far, in the last 3 years, we have launched only seven products and all of them are doing extremely well. We have invested more than Rs 30 crore in the business and we have already reached the break-even in the last quarter. We shall reach a full annual break-even in the next year (2013-14). Peerless General Finance and Investments (PGFI) is also infusing an additional Rs 50 crore to make the capital Rs 100 crore. This makes our operations stronger and solid. PGFI has supported mutual fund operations at every step and will do everything to continue this support. Infusion of capital is one of the support measures.

What is your view on the overall financial market? What are your concerns on the global environment and do you think it can be a drag on the Indian market? And why?
Overall the financial markets do reflect the global economies eventually. Global economy will go through stress of deleveraging over the next 10 years. While, the pain will be felt more in the western economies, Indian economy has strong linkages to the western world. Hence, on an overall basis there is pain but I see that outsourcing theme can turn out to become an exception and will get a boost due to global pain. Sectors like IT, Pharma and Auto will benefit from the global pain that will result in work getting outsourced to skilled developing economies like India.

What is your take on the Indian equity market and why? Do you see the rally sustaining near the 19000 mark? In your view what will be the next trigger for the Indian equity market? And why? When do you see it coming?
I do expect the markets to rally from these levels by another 10-15 per cent till they become visibly expensive. We must remember that FIIs have been the reason for this rally. They are smart investors and gravitate towards wherever they find better value. So, 19000 may not be too far but the next trigger for the market will be implementation of all the announced reforms and also absence of any “downgrade” news.

What is your view on the overall corporate performance of Indian Inc? Have the September-ended quarterly results that have been declared so far been in line with your expectation? Which are the sectors that you are bullish and bearish about?

Expectations have been clearly met. In fact, I feel that we have been positively surprised in some sectors like Pharma, FMCG, Cement, IT and Auto. Some sectors like PSU Banks, Commodities and Telecom have yet again not been up to the mark. We continue to remain bullish on 2 themes – Consumption and Outsourcing and in particular - FMCG, Pharma, Auto, IT and private banks.

In current market condition, where will you advice investors to invest? Currently where are you investing your own money? And why?
I am investing 70 per cent of my own money in Hybrid schemes (mixture of Debt, Equity and Gold) along with 30 per cent in diversified equity schemes on a systematic basis. My advice to customers would be to invest in short-term income and flexible income schemes on the fixed income side and diversified equity funds on the equity side or invest in hybrid schemes because they rebalance automatically and have asset allocations, which might benefit retail investors, who do not have much time to spend.

As a fund manager what call will you take on the overall portfolio of the mutual fund? What will be your short-term strategy in the current market condition?
We have kept maturities in the fixed income side at a conservative end of the range across various products and therefore have not been adversely affected despite the fixed income markets correcting in the last two weeks. Having said that, the fixed income returns since January 2012 have been substantial and the last two weeks may not be the barometer for investors to get worried. On the equity markets front, we have been stocking companies with good governance, sound cash flows and low impact of policies/ previous policy actions.

What is your take on the 10-year G-Sec yields and why? Do you see it going past 8.30 per cent? Where do you see yields in the short-term (3M) and medium-term (6M)?
Our forecast is that interest rates have to come down and despite temporary blips, the whole yield curve has to come down by 25-50 bps. We should see 10 year touching 8 per cent by April 2013.

Fixed income, particularly FDs and bonds have become a flavour among investors, even equity fund managers are keeping a large portion of their money in FD and bonds. In your view is fixed income still a cushion for equity investors?

Thankfully, it has and it should have been long time back. Trust deficit in the industry is largely due to the fact that fixed income funds were not sold in the right quantum to retail investors between 1998-2008. Fund managers can keep money in money market instruments only temporarily as a conservative call. Fixed income is the essential cog in the asset allocation wheel and financial advisors must incorporate 25-75% of any portfolio in fixed income funds accompanied by equity and gold.

What is your take on the 1 year, 2 years, 3 years, 5 years and 10-years yields in corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure?
We are bullish on 2-5 year bonds – both PSU and corporate since there has been a correction recently. We have been buying opportunistically in the 2-5 year segment. However, on an overall maturity basis, we are still keeping lower maturity and duration in our funds.

What is your view on gold? Should it take maximum share of ones portfolio as the world economy is still not showing signs of revival?
Gold will have a good run for the next 10 years. Of course like any other asset class or investment, there are bound to be corrections and rallies. Like I have said previously, global pain will keep gold at firm levels. So, there is no indication of major correction in the global gold prices. Gold should ideally occupy 10-30% of one’s portfolio. If rupee depreciates with a higher ferocity, we will see gold prices touching new peaks in India.

What is your take on the Indian currency? Do you think its heading towards the 60 mark and why? Where do you see the Rupee in the next three months before the budget?

It is difficult to put a number on the rupee-dollar but there are 2 scenarios…First – if all goes well, dollar flows continue, then rupee can get back to Rs 50 and the second- if a downgrade happens or fiscal situation goes beyond control due to policy inaction then even 60 may be less for the rupee to stop.

Oil is hovering around $110 per barrel, now with the US election over do you see the upsurge? And why? Will this be the dampener for the Indian market?

Till monetary easing continues hedge funds and other funds (run by the ARAB world) will continue to tank-up oil futures. With US President, Obama getting re-elected, it is likely that oil will continue to hover above the $100 level. For India, the tight-rope walk will continue since Oil is the largest import item for India and till the prices come down significantly i.e below $80 per barrel, Indian economy will continue to be on the edge.