Smart Talk

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Amit Ganatra, Fund Manager, Invesco Mutual Fund, has over 14 years of experience in equity research. Prior to Invesco, he was associated with DBS Cholamandalam Mutual Fund and with Fidelity as well. Amit holds a Commerce degree and is a Charted Accountant. He is also a Chartered Financial Analyst from AIMR. He speaks to Geojit Insights on the current scenario in the MF industry.

What challenges did you face in the current fund categorization exercise? What were the opportunities which came up?

For Invesco, SEBI’s categorization exercise was quite smooth. In fact, this categorization exercise has thrown up opportunities for us to fill in the spaces in our product basket. We have, accordingly, identified hybrid and small cap categories as product gaps that we intend to fill in and have already launched Invesco India Equity and Bond Fund in the hybrid category.

As nations are moving towards more protectionist strategy, what are the challenges and opportunities for India in the long term? How should investors perceive these developments?

The stated events do not have any meaningful direct impact on India. However, we have had the experiences of a protectionist economy in the past when we ourselves were such an economy in the pre-1991 era and we have also seen the transformations of a more liberal economy in the post 1991 period. One of the key takeaways from our own experiences is that the protectionist measures are usually designed to benefit the local manufacturing industry, eventually end up hurting the economy as it gives rise to inefficiencies and higher inflation in the long term.

What factors do you analyze in a stock/sector before adding it in your portfolio?

Invesco, as a fund house, is significantly process-driven with considerable focus on internal research capabilities. Being ‘true to mandate’ is integral to Invesco’s investment philosophy and therefore stock selection and portfolio construction are considerably influenced by the individual scheme mandates. Our investment process filters stocks on parameters such as – identifying key fundamental attributes of the company and drivers of stock price performance, valuation attractiveness judged in the context of the category, view on the economy and its implications on industries and companies etc.

Your portfolio has exposure towards automobiles sector, especially auto ancillaries. What is your long-term outlook on the auto sector with special emphasis on auto ancillaries? Is it the right time for a regular investor to enter this sector with a long-term capital appreciation strategy?

Our house view is to have a pro cyclical stance to benefit from India’s earnings recovery. Consumer discretionary being a cyclical sector is one of our preferred sectors. Within this segment we have significant exposure to the auto/auto-ancillary sector, especially in companies where we believe that the underlying business models have an ability to display longevity and potential to compound earnings.

In the current scenario, where the macro economic factors like rising inflation, increasing crude price, rising bond yield and a weak rupee are negatively affecting the market, what will be your advice to a new investor who is entering the market?

Over last six months, India’s macro conditions like inflation, fiscal deficit and current account deficit have deteriorated on the margin, and to that extent the country has borne the cost in the form of higher fuel prices as well as higher interest rates. In the past when interest rates were lower, higher (P/E) multiples for markets were being justified and to that extent if interest rates rise, multiples should normalize. As far as the commodity prices are concerned, contrasting the popular perception, a recovery in commodity prices (including oil) is generally a positive catalyst for corporate earnings’ recovery. This is because strength in commodity prices is usually an outcome of strength in global growth which in turn feeds into higher economic activity and hence, eventually, fuels the earnings’ cycle. Thus, while rising interest rates do make a case for normalization of P/E multiples, rising commodity prices generally support the earnings cycle with a lag.

For new investors entering the market we advise them to consider large cap funds and funds with inbuilt asset allocation strategies. Besides, considering the near-term volatility, we recommend them to adopt systematic investment plans (SIP) to spread their investments over the course of next one year. We also urge investors to have modest return expectations from the market, at least for the next 12-18 months and brace for relatively higher volatility in the interim.

In almost all portfolios that you handle, the exposure to defensive sectors is less than that of the benchmark. Why is it so? Is it a part of your investment strategy? What will be your advice to a regular investor who wants to purchase defensive sector stock with a long-term investment horizon?

As a Fund House, we have taken a procyclical stance to benefit from India’s earnings recovery. As a result we have a relatively higher exposure to cyclical sectors such as Financials, Consumer Discretionary and Industrials. All the same, we also have reasonable exposure to Sectors such as Pharma and IT as they are the beneficiaries of currency depreciation. We are underweight on consumer staples due to expensive valuations. We believe the defensive nature of a company or sector holds true not only due to earnings stability but also due to attractive valuations.

What is your long-term outlook on Financial Services Industry with special emphasis on NBFC, Housing Finance and Insurance companies?

In the long-term Financial services’ industry, is likely to be a beneficiary of (a) General economic growth (b) Rising penetration of financial services (c) Market share changes between private sector and public sector. Investors are thus expected to benefit as more investment choices become available as firms across asset management, Life insurance, General Insurance, Small finance banks, Fintech companies etc. get listed.

When we take the portfolio of your flagship schemes, the private banking exposure appears on the higher side. Recently there are some disappointments in terms of asset quality from private banks also. How do you position your portfolio on this?

Historically we have had exposures to high quality retail focused private sector banks with strong liability franchise and superior asset quality track record. However over last 1 year we have also added exposure to corporate lenders as we believe that there will be turnaround in their earnings through FY18-20, led by recovery in asset quality.

In the consumption-driven economy like ours, the consumption story funds were giving high returns in the recent past. Will this story last longer? What is your outlook on Indian consumption story with a long-term perspective? What will be your advice to a new investor who is planning to purchase consumer stocks at this point of time?

India is a relatively young country in terms of demographics. India’s consumer story i.e. its consumer sector is a direct beneficiary of consumer / household surplus due to rising incomes and aspirations of the country’s young population. Besides, low penetration in many important product categories provides a strong foundation for structural growth opportunities in this space.

What are the factors you consider while selecting stocks for 3-year lock-in ELSS fund like INVESCO India Tax plan?

Invesco India Tax Plan is a multi-cap strategy managed with a long-term perspective. It seeks to invest in companies which are growing their business on a sustainable basis and are available at a reasonable price. So, before making any investment for Invesco India Tax plan, there is an emphasis on quality of business, longevity of earnings growth, return ratios and attractive valuations.

Disclaimer: The views are expressed by Mr. Amit Ganatra, Fund Manager, Equities, at Invesco Asset Management (India) Private Limited. This write-up is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund units/securities. The content of this document is confidential and intended solely for the use of the addressee. If you are not the addressee, or the person responsible for delivering it to the addressee, any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it is prohibited and may be unlawful. The views/ information alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions included in this document are as on date and are subject to change without notice. The sectors / stocks referred to in the document are in response to the questionnaire and the schemes of Invesco Mutual Fund may or may not have present or future positions in these stocks / sectors. The statements contained herein may include statements of future expectations and other forward looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. While utmost care has been exercised while preparing this write-up, Invesco Asset Management (India) Private Limited / Invesco Mutual Fund does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Neither Invesco Asset Management (India) Private Limited / Invesco Mutual Fund nor any person connected with it accepts any liability arising from the use of this information. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate professional advice.

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