“Time spent in the market more important than timing the market”

Should investors look for more clarity to emerge from elections before deciding to invest? While this may be an emotional factor, for equity investors, inflation, interest rates and expectation of earnings growth are far more relevant says Anoop Bhaskar, Head Equity, UTI Asset Management. In an crisp Q&A with FundsIndia, Anoop explains where he thinks opportunity lies now and the strategy behind some of their funds.

Excerpts:

Do you believe that the mid-cap market cap segment is waiting to be picked now?

Mid and small caps are priced at a discount to their large cap peers, unlike Dec’10 when they were trading at a premium.  This reflects the struggles of the domestic economy.

If an investor believes that the economic cycle has bottomed and should move northwards then these stocks with 2-3 year horizon look attractive.  Incidentally, selective large caps are also similarly placed.

 If one looks at corporate earnings it appears to suggest growth may be bottoming out. But there appears little sign of recovery. When do you think we can expect this to change?

We believe that second half of FY-15 should see the start of the upgrade cycle by analysts.  The coming two quarters may continue on the same lines as the September 2013 quarter results showed – large caps holding ground, while mid caps struggled and small caps report double digit fall in profits.

Would you advice investors to wait for clarity to emerge (on economic and political front) before investing afresh in equities? Is there a risk of missed opportunities by waiting?

My personal belief is that time spent in the market is more important than timing the entry and exit.  Investors, unfortunately focus on the latter.  SIP provides the best solution for investors who are hesitant to enter the market fearing market tops and bottom.  We actively recommend this route for investing in equities.

 How much weight would you place on the impact of elections on market? Does one have to wait for clarity from elections to know the direction of the market?

While elections are an exciting event and stir the emotions of all citizens of India, for equity investors, inflation, interest rates and expectation of earnings growth are far more relevant.
Given the current levels for all three, improvement on all three fronts is a key assumption for any equity investor.  The pace of this improvement will impact more than the political drama of the general elections.

The banking sector looks attractive from a valuation perspective and yet looks equally risky when weighed against current issues such as NPAs and high cost of funds. What is your take on the sector now?

With inflation at double digits and 10-year G-Sec at about 9%, banking sector is well poised from any moderation in inflation in the coming months.
Within banking space we are most circumspect on mid sizes PSU banks, rather than getting enamoured by the “value trap” some of these names offer.  We would continue to prefer the private bank space and select NBFCs rather than the PSU banks.

 Your dividend yield fund (as well as themes from other AMCs) has been struggling over the past year. What went wrong?

Actually our dividend yield fund has handled the down side well in 2008 and 2011 well but has not been able to handle the “upside” of the last 18 months as the markets have got concentrated on select group of 50-60 stocks with more stable earnings profile.

Our belief on the high dividend yielding companies representing good quality companies offering more sustainable wealth creation opportunities for investors remains unshaken.
We believe that the phase of last 18 months is a passing phase and dividend yield will remain relevant in the future.

 Is UTI Equity to be perceived as a large-cap focused fund?

It is a large-cap focused fund, with a minimum of 70% of the portfolio in large-cap stocks at any time with the flexibility to invest up to 25% in small and mid caps.  Given that small and mid caps have underperformed large caps during the last 18 months, we have used the “flexibility” of the fund to inch-up our large cap exposure to 85%.

We would selectively reduce and increase our small and mid cap exposure in the future.  This has also contributed to the fund sustaining its performance during this strenuous period.

 Your Opportunities fund, for a good while now, has held higher large caps. Can this change once a mid-cap driven rally becomes evident?

This fund will remain a fund with about an 80% and 20% large- and mid-cap holding respectively.  It would be rare for this fund to invest in a sub Rs 4,000 crore market-cap company.