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Biggest challenge for markets is earnings surprise

Gopal Agrawal, CIO-Equities, Tata Asset Management


In a nutshell

Market re-rating for reforms is done and dusted - from here on, markets have to grow only on the strength of earnings revival, given that valuations are already at 1 std dev above mean. Earnings revival is sensitive to credit and commodity costs - we cannot afford nasty surprises in either. Looking ahead, consumption as well as infra themes look positive - with affordable housing, defense, T&D, renewables and roads being the favoured sectors within infra.

WF: It's been a quarter since you joined Tata Mutual Fund. How are you settling in since taking over as CIO - Equities?

Gopal: It has been a great experience working with a relatively large team, getting diverse views and building a common thought process. The overall work culture is cohesive and gives space to work. It has been a great learning so far with the team, finding gaps in the portfolio amidst a rebuilding phase.

WF: How are you reshaping the equity strategy at Tata Mutual Fund?

Gopal: The objective is to improve and maintain the consistent performance of our schemes. The strategy revolves around more rigorous work on stock research, a team based approach, welcoming debate and discussion.

WF: How do you approach valuation, and what type of returns do you target?

Gopal: The current market valuation at close to 19xFY19E is 1 std deviation above the long term average. This is on the higher side but the bold reform measures taken by the government will structurally bring down inflation and thus the cost of capital which will justify this valuation. Market returns from here onwards will track earnings growth as re-rating of the market has been done with.

WF: Which sectors/themes are on your current investment list?

Gopal: We are structurally bullish on the consumption theme in India due to higher discretionary spend, favourable demographics, lower inflation, increasing disposable income and a move from unbranded to branded products. Infrastructure led by affordable housing, defence, T&D, renewables and road is likely to perform better.

WF: What is your overall call on the markets for FY18 and FY19?

Gopal: The market is in a consolidation phase after a strong run. The returns here onwards will be diverse even intra sector as they will be aligned to earnings growth. Growth style may outperform value.

WF: What are the challenges for the market?

Gopal: The biggest challenge for the market is the earnings surprise which is mostly dependent on credit cost and commodity prices. Any resolution on NPA which is underway may be very positive for the market. The global economic recovery which is underway should gain momentum and we should have GDP growth of upwards of 3.5% for a couple of years. The domestic private investment cycle is still weak and needs to be strongly supported by government funding till it revives.

WF: Retail investor appetite for equity is growing at a time when valuations look high. What is the right product strategy for distributors to adopt in these circumstances?

Gopal: Investors should strictly adhere to their asset allocation. In equity portfolio, they should look more at diversified equity funds which should have a combination of both large and midcap. In the debt space, one should look at funds with moderate maturity.

WF: What is your message to your distribution partners on what they can expect from Tata MF's equity team, under your leadership?

Gopal: We are committed to consistent wealth creation for our investors with a "customer first" approach. The team is strong and working hard to achieve our goals. We have a complete bouquet of products which investors can choose based on their risk assessment.

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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