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'Expect a pro-growth Budget;decent market returns in 2015': Atul Bhole
Fri, Feb 27, 2015
Source : Jeni Shukla, Citrus Interactive

Atul Bhole is an Equity Fund Manager at Tata Asset Management Company. He has an experience of over 10 years in capital markets. He has done his Masters in Management Studies from Jamnalal Bajaj Institute of Management Studies and is also a Chartered Accountant.

The current mutual fund schemes managed by him are Tata Equity P/E Fund, Tata Midcap Fund, Tata Balanced Fund, Tata Retirement Savings Fund – Conservative Plan and Tata Retirement Savings Fund – Moderate Plan. His equity funds have given very good returns in the last few years – consistently beating the benchmark.

In an exclusive interaction with Jeni Shukla from Citrus Interactive he talks about his expectations from the Union Budget, views on the market and his funds.

What are your expectations from the upcoming Union Budget and its impact on the markets? Have you made any changes to your portfolios in anticipation of this event?

We think the Budget will be pro-growth. There can be increased allocation to infrastructure sectors like roadways, railways etc and some SEZ related sops. We believe the fiscal deficit target of 3.6% will be maintained for next fiscal. Despite that, the government will be able to spend on infrastructure projects. This will be possible because of savings due to fuel subsidy coming down. That should be a big positive.

We are not expecting any other big bang announcements. On the personal income tax front, the exemption limit can be increased to Rs 3 lakh. The government might raise 80C limit from Rs 1.5 lakh to Rs 2 lakh and 80CCD benefits might be given for Retirement schemes of mutual funds. Disposable income is likely to go up because of these tax reliefs – especially for urban consumers.

As far as markets are concerned, a lot has been factored in from the start of January. If market gets the sense that pro growth reforms will continue and the fiscal deficit target is met, then that will be taken positively. There is a lot of improvement in macro indicators and in the global context also we are placed very well.

We have not made any budget-specific changes to the portfolios. We were positive on rate sensitive, cement, infrastructure, pharma sector etc  and we continue to buy on dips.


What is your view on the current valuation of the market? Where do you see Sensex by the end of this year?

We have reached historical average levels – 1 year forward PE is 17 times but it is still not a much stretched level. When the cost of capital comes down, equity multiples can sustained or may even go higher if earnings growth comes as expected. In addition, we expect, money flow (foreign as well as domestic) as well as the news flow are going to be positive. So, we are not unduly worried by the valuations. We can see moderate gains from market for CY15 compared to CY14, but they would be pretty decent. Stock selection would matter a lot more this year.

 

What has led to large caps outperforming mid caps YTD? Do you see this trend continuing?

It’s going to be more quality-specific going forward. Better quality companies are performing well. Within midcaps also, good quality companies which are showing good growth in topline/bottom line have performed well. It’s about the quality and not the market capitalization. With a 2-3 years view midcaps will outperform large caps if you buy the right companies. We are fine with slightly expensive valuations but we believe in buying quality and growing companies.

 

What are the major risks that you see impacting the market this year?

From a global perspective we are not so worried. There is ample liquidity which will benefit India. The major risk is regarding Parliament functioning and how this government can take forward its reform agenda. This Budget session will be very important. If that does not go well, FIIs may become nervous.

 

Please comment on the fund management philosophy and approach for Tata Equity P/E fund. What is the market capitalization mandate?

It is a value-cautious fund. 70% of the assets have to be invested in companies where 1 year trailing P/E is lower than that of Sensex. For example, if Sensex 1-year trailing P/E is 19, then 70% of the fund’s assets are invested in companies whose 1-year trailing P/E is less than 19. It is tracked on a daily basis. If there is any deviation (if the percentage slips below 70) we have to correct in the next 15 days. It has no market capitalization mandate. However, we try to maintain it as 60% in large cap and 40% in midcap. It has some amount of large cap bias.


Tata Equity P/E Fund has given 78% return (as on 25th Feb’15) against Sensex return of 39% in the last 1 year. What has led to the outperformance?

This fund does well during rising markets. When the rally began 18 months ago the Sensex forward P/E was 12. A large number of companies in the portfolio were trading at a significant discount. Many of them have got re-rated significantly along with positive earnings surprises. Combination of these two things resulted in many stocks gaining significantly in this period.


Tata Balanced Fund has consistently been a top quartile fund (last 3 month, 6 month, 1 year, 3 years, 5 years). What factors have helped in this performance?

We believe in staying invested in markets. We do not take cash calls. In our case the equity component will always be at least 74-75%. Taking cash calls or trying to time the market does not always work. So whenever the market falls we keep buying on dips and when the market goes up we book the profits to maintain the debt proportion. So automatically buying low and selling high happens. That helps in the long term. Also our quality orientation in buying and holding business or companies has helped the tremendously over the years.


Tata Balanced Fund holds around 62 stocks. Is it not a large number?

We try to keep the portfolio less concentrated. The top holding is always 4-4.5% and then there is a long tail of 50-60 stocks with a decent weight to each stock. That way we reduce the risk and try to participate in as many opportunities as possible. Within each sector also we diversify across a basket of 5-8 stocks.

 

Disclaimer: The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you. Please consult your Financial/Investment Adviser before investing.  The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully
 
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