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Outlook positive over next 2-3 years: Sanjay Parekh
Sun, Jan 15, 2017
Source : Jeni Shukla, Citrus Interactive

Mr. Sanjay Parekh is a Senior Fund Manager at Reliance Mutual Fund. He has over 18 years experience in equity research and fund management, 9 years in fund management and 8 years as an analyst across various sectors. Prior to joining Reliance Nippon Life Asset Management Limited (formerly Reliance Capital Asset Management Limited), he worked as Senior Fund Manager with ICICI Prudential Asset Management Company Ltd. He has also been associated with organisations like ASK Investments Managers.

 

What is the Investment Philosophy, Style & Positioning of Reliance Banking, Reliance Regular Savings - Balanced, Reliance Equity Savings Fund, Reliance Retirement Fund and Reliance MIP?

 

All the mentioned funds follow the common investment philosophy of Growth at Reasonable Price (GARP) with a strong emphasis on Growth with quality. The attempt is to create superior risk adjusted returns through the equity portfolio over the medium term.

 

Strategy:

Across all the offerings we aim to generate sustainable alpha through a combination of:

• Focused sector selection and that would mean active overweight and underweight call.

• High Conviction investments within large cap space. Alpha also created by exclusion strategy i.e.  avoiding bets which can underperform despite being an index heavyweight

• Adequate margin of safety and strong price discipline (regular profit taking)

Further the Divergence between large and midcap stocks/small caps has to be higher for justifying the place for the latter.

Positioning

 

• Reliance RSF Balanced Fund:

Reliance Regular Savings Fund – Balanced Option is an equity oriented Hybrid Fund which invests approximately 65% – 75% of its corpus in Equity and the balance in Fixed Income securities.  At least 65% of the Equity portfolio is invested in Large Cap stocks and rest is quality mid-cap companies.

 

• Reliance Equity Savings Fund & Reliance Retirement Fund – Wealth Creation Plan”

Equity strategy will mirror replicate the Balanced Strategy in Equity component of the Fund with at least 65-70% of the equity in Large cap stocks.

 

• Reliance Monthly Income Plan:

Equity Portfolio will be 20% with at least 50% would be large cap stocks. Few concentrated bets in sectors and stocks, however an adequate defensive in the portfolio.

 

• Reliance Banking Fund:

Investments focused on the banking sector with a maximum of 20% in non-banking financial service companies. Well diversified portfolio across the sector segments. Asset quality risk, Strong Franchise, High/potential ROE, ROA are key investment parameters. 

 

 

What is your outlook on the economy post demonetization?

Government of India announced a major demonetization exercise on November 8th, 2016, targeted at black money hoarders, which is a significant reform measure. In the immediate few weeks’ post demonetization few industries have seen a negative impact in demand primarily due to lack in currency in hand and also due to disruption in financing and supply chain. Sector like durables, Auto have seen some impact in the near term, while major impact will be felt in real estate and high value Jewellery and luxury consumption over the next 12 months.


Overall growth recovery has been pushed by at least 2 quarters on the back of the demonetization exercise as against earlier expectations of growth recovery in second half of FY17.   While the GDP growth will be impacted in the near term, given the fact that most of the problem or slowdown as of now is primarily due to lack of currency-in-hand, growth in most sectors will normalize with consumer staples and passenger auto recovering fast.

As the RBI keeps pushing currency of new denominations of Rs.500 and Rs.2000 into the system, the current cash crunch is likely to reduce progressively with things returning to normalcy over the next 3-4 months.  On a positive note a gradual improvement in the currency-in-hand is already visible post 3-4 weeks of demonetization and demand environment is stabilizing.

Thus while the move can cause near term slowdown it’s a significant positive for economic growth over the medium term.

 

What is your Equity Outlook for 1 to 3 years? What range is Sensex/Nifty likely to be?

In the near term markets are excepted to be range bound given the domestic developments and few international events. However, Government revenues should benefit from a medium to long term jump in tax collections due to better compliance & GST impact. We expect the Government to use this additional inflow to boost the economy by spending on its already announced infrastructure initiatives. The Union Budget which is likely to be presented in Feb 2017, is the biggest near term driver.

Government actions on the ground, good monsoons, easy liquidity conditions and improved ordering in roads and railways are driving positive commentary by Indian corporate sector. With many factors now showing improvement year over year and with low base allowing for earnings to rise meaningfully in the next few years, Indian Equity markets are attractively priced from a medium term time frame.

Hence the outlook for Indian Equity markets remains positive from 2 to 3-year timeframe, given the likely earnings improvement supported by uptick in cyclical demand.

 

Which are the sectors you are overweight/underweight on?

We are positive on Domestic Consumption oriented themes like - Auto / Auto-ancillary, Financials, Media, Organised retail, Building Materials/Cement.  We also are positive on Investment theme across the segments which will be benefit from capital expenditure. We are underweight on FMCG space due to the higher valuations. In outsourcing, we like IT & Health care but would be more selective in these theme.

 

What is your take on Equity savings fund as a category? What kind of risk -return profile will these funds have?

In the current scenario of declining interest rates or debt yields, Equity Savings space is likely to emerge as an important category for risk averse investors seeking superior inflation adjusted returns. Equity Saving funds can potentially generate returns better than pure debt funds with lower risk or volatility than Equity oriented funds. Additionally, these funds enjoy the taxation advantage of Equity Funds and hence there is no long term capital gains tax along with tax free dividends.

Thus the Equity Savings category can potentially provide the ideal blend of Superior Inflation Adjusted & Tax Efficient returns along with lower volatility.

 

Do you think Large or Mid-Caps look more attractive at this point?

Over the last 2 -3 year domestic equity markets have witnessed a higher divergence in performance of Large Caps versus Mid & Small caps. For instance, since Dec’13 till Dec ‘16, S&P BSE Mid cap index is up by 85% on an absolute basis whereas the S&P BSE Sensex returned only 25% during the same period.  Even from a valuation perspective Large Cap spaced appears to be more attractive.

Thus clearly risk/reward is in favour of Large Cap over the medium term. Further Larger businesses have a well-established track record across market conditions and are expected to be the early beneficiaries of the economic revival.

Hence we believe Large Caps are attractively placed in the current market scenario while Mid/Small cap space can still potentially outperform over the long term.

 
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