The following interview appeared in 2012 edition of the India Fund Observer, our yearend publication. To read the e-magazine, click here.
We spoke with Sunil Singhania, Head – Equities at Reliance Capital Asset Management, which manages over Rs 90,000 crore in assets. He said he expects stocks to outperform most asset classes in 2013 and added that investors should be wary of paying too much attention to “noise” and stay invested in stocks to make good returns over the long term.
2012 was the year of stocks. What year is 2013 likely to be—stocks, debt or gold?
Our view on equities for the coming year is constructive. With improvement in the macroeconomic parameters and with corporate profitability expected to go up, we believe 2013 should be a good year for equities and investors could expect to better earn returns from equities than many other comparable asset class.
Within that, what are the key macro risks to stocks either locally or globally that could materialize?
Various news flows related to global and domestic developments will keep flowing in and may impact markets in the near term. Though investors may keep hearing such terms every now and then, adding to their fear and apprehension, we believe these are more in the nature of ‘noise’ in the market.
Rather than being paralyzed by such negative sentiment, those investors who took a more rational approach and a medium term view were the ones who actually saw good opportunities in every correction and made good returns.
While it is important to be conscious of various developments, investors should not lose sight of equities and miss out on the larger opportunity of making returns from equities.
How do you see earnings growth panning out? And which sectors do you think are poised to grow more aggressively than others and why? Where do you stand on various sectors in terms of valuations and which ones appear the most and least favourable?
With interest rates believed to come down and the markets coming on the back of slow earnings base over the last few years, we expect a reasonably strong earnings growth of about 14% for FY14. Companies in the defensive sectors such as FMCG and pharma and consumption-led sectors have done very well in the past few years.
High interest rates have also resulted in companies with low leverage doing relatively well. However, with expectations of interest rates going down and with confidence slowly coming back into the system, we expect interest rate sensitive, capex-driven and growth sectors such as power, auto, banks, etc. to make a comeback in the near to medium term.
How much of economic reforms you think will the government be able to push through in the Union Budget considering it’s just one year to go before the central elections. And viewed in the context of the spate of measures the government has taken, how does it overall record now stack up in its second tenure when it comes to reforms?
Over the last few months, lot of reforms have been initiated and pushed by the Government, the impact of which is very visible in the equity markets. More importantly, these reforms have come at a time when they were expected the least. Going forward, we do believe that this process should continue.
We have seen industry-wide outflows from various equity funds and many individual investors used the market rally to sell. How has the experience been at Reliance?
Large investments in equity schemes in India came during 2006-7. The current large redemptions being witnessed in the MF industry are the investors of 2006-7 using this up-move as an opportunity to exit at cost. Our experience at Reliance has been similar where we have seen redemptions in many equity-oriented schemes, particularly those investing in mid-cap stocks or sectors like power and infrastructure resulting in valuation loss, in line with the entire MF Industry.
Having mentioned about outflows in equity schemes, we did witness phenomenal inflows in other asset classes - retail debt and gold. With the last one-year performance of equity schemes, particularly of Reliance Mutual Fund being strong, with most schemes delivering higher returns than the respective indices and the peers, we expect retail inflows to pick up in the future.
Your infrastructure fund’s performance has not been great. What is the plan there and what’s your view on the sector overall?
The sector has seen many challenges, from regulations, land acquisitions, graft cases to challenging macro environment of high interest rates. The Fund’s performance has to be looked at in that perspective. We do believe that infrastructure has great potential in India and our infrastructure fund has the right portfolio to capture this potential.