Wednesday April 28, 10:30 AM
"Over the longer term, we see equities delivering returns in line with earnings growth of the corporate sector viz. 15-20% per annum." |
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By Personalfn.com
Mr. Anup Maheshwari is an MBA from the Indian Institute of Management, Lucknow. He began his career with SCICI Ltd. (now a part of ICICI (ICIC.BO, news) ) in project finance. He joined DSP Merrill Lynch Fund Managers in July 1997.
DSP ML Mutual Fund has been in the news with its product launches. We decided to interview Mr. Anup Maheshwari to get his views on the economy and inputs on DSP ML's investment strategy. At the end he had some words of advice for the retail investor.
Pfn: The equity markets have risen sharply and are presently displaying a lot of volatility. How do you expect markets to behave from here onwards?
Mr. Maheshwari :
We are quite positive about the market. The fundamentals are still strong; valuations are still inexpensive and economic data is indicating an improving scenario. We believe that equities as an asset class, still holds better potential for upside, as against most other asset classes.
Pfn: What kind of an impact do you think the forthcoming general elections will have on the markets?
Mr. Maheshwari :
The upcoming election may create some short-term volatility, but eventually fundamentals will prevail.
Pfn: Please share with us your views on the economy. Do you think the “feel good” factor is supported by real numbers?
Mr. Maheshwari :
Clearly, the economic scenario today is arguably better than any time in the past. Forex reserves are at an all time high of $110bn. The current account is in surplus. Interest rates are at all time low, inflation is under control. To top it all, GDP has grown at over 8%. Therefore the numbers support the fact that the economy is in good shape. The important thing however, is to show an ability to sustain a 6-7% + GDP growth rate. If we can sustain such a growth rate, even the fiscal deficit (which has long been the bugbear of our economy) may come under control.
Pfn: Diversified equity funds have performed very well in the last 12-15 months or so. Expectations from these levels too are running high. What kind of returns do you expect these funds to turn in over the next 3 years or so?
Mr. Maheshwari :
We believe that equities as an asset class will continue to outperform most other asset classes so long as the fundamentals are in place and valuations are not stretched. Until then it is advisable for the investor to remain invested. Over the longer term, we see equities delivering returns in line with earnings growth of the corporate sector viz. 15-20% per annum.
Pfn: What is your investment strategy? What are your key parameters for stock selection?
Mr. Maheshwari :
On the equities side, it is a combination of a top-down and bottom-up approach. We take a macro call on where the overall economy is headed in the next 12-18 months. Based on that, we try to distill a sectoral viewpoint. When it comes to stock selection, there are a host of factors that come into the picture to determine whether a stock is undervalued, overvalued or fairly valued. Clearly, management quality is very important to us, which is a qualitative factor. Then on the financial side, we like companies that are competitively well positioned to deliver sustained growth. From a numerical point of view, we look very closely at the return on equity because in many ways, this number tells you how efficiently the management is utilising capital and how well it is tackling the challenges of their business environment.
Pfn: You have 3 diversified equity products in your portfolio. How have you positioned them?
Mr. Maheshwari :
We started in 1997 with the DSPML Equity Fund, which currently has Rs 800 m in assets. The objective of this fund was to outperform the benchmark index. We typically run a fully invested position. The portfolio turnover is not very high; the idea here is to take a long-term view of the market. This fund remains fully invested in good quality long-term ideas. The portfolio is therefore strategic in nature
The DSPML Opportunities Fund, which was launched in March 2000, has a more dynamic style and is positioned as an aggressive equity fund. Since this fund takes more aggressive bets on sectors and stocks, you will find that the portfolio turnover will be higher than say the DSPML Equity Fund. The portfolio positioning here is therefore more tactical in nature. This fund has grown from about Rs 500 m in May-June 2002 to approximately Rs 6.3 bn today. This fund has been a top quartile performer.
DSPML Top 100 is a fund we launched in February 2003.The size of the fund is Rs 1.4 bn today. The objective is to focus on the top 100 companies by market capitalisation so that the investor is pretty clear that this will be the universe from which we select our stocks. We will invest in approximately 25-40 stocks drawn out of this list. The reason we launched this fund was because we found that there are some investors who are not comfortable seeing mid-cap or small-cap stocks in their portfolios. Also, as a group, the top-100 universe has done very well.
Pfn: Asset Management Companies seem to have gone overboard with launches of MIPs. Given the marketing push, the response from investors has been terrific. What are your views on MIPs as an investment product?
Mr. Maheshwari :
MIP schemes are ideal for investors who wish to enjoy the cushion of debt investments but also benefit from the sustained growth in the equity markets. Investors in such funds would certainly like to see the benefits of equity investments coming through, but at the same time, the tolerance for downside risk is somewhat limited.
Pfn: Your advice for retail investors in the present scenario?
Mr. Maheshwari :
We at DSP Merrill Lynch Mutual Fund remain positive on the prospects of equities over the longer term. With interest rates near all time lows, the appeal of equities as an investment destination is far too attractive for investors to ignore. However, an investor should clearly define his/her investment time horizon before he/she starts investing. As we are all aware, there will always be periods of volatility in both fixed income and the equity markets and the best way to ride out such volatility is to continue to remain invested and avoid timing the markets. As they say, “time in the markets and not timing the markets is the key to better returns”. Investors should invest regularly, in line with their earnings stream.
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