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Indiabulls MF’s equity head Sumit Bhatnagar expects FY19 to be volatile

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Himadri Buch

Moneycontrol

Global headwinds in the form of rising interest rates, liquidity reset, Trump’s trade policies, geo-politics matched with domestic issues like election uncertainty, weak fiscal and current account deficits are likely to keep domestic market volatile in FY19, said Head-Equities, Sumit Bhatnagar of Indiabulls Mutual Fund.

In an interview to Moneycontrol, Bhatnagar said that market will also react to the economic recovery and corporate earnings which are expected to be robust.

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The equity head also believes that rural consumption is going to be a key theme going forward and allied sectors like FMCG, auto, cement, consumer appliances are likely to remain in focus.

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Himadri Buch

Assistant Editor|Moneycontrol.com

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The key overweights for the fund house are  FMCG, auto & auto ancillary, oil & Gas, construction and allied sectors, & consumer non-durable sectors.

The fund house also expects slew of initial public offers from PSUs and private space to hit the market in FY19.

Considering the volatility in the market, the fund house has increased its cash levels to 7-9 per cent across schemes.

Generally, mutual funds hold 3-4 per cent cash levels to honour any redemptions, if any, in their schemes.

Edited excerpts from the interview:

After a 10 per cent rally in FY18, how is FY19 likely to pan out for investors?We expect FY19 to be a volatile year due to confluence of domestic and global factors. Global headwinds in the form of rising interest rates, liquidity reset, Trump’s trade policies, geo politics etc, combined with domestic issues like election uncertainty, weak fiscal and current account deficits etc are likely to keep markets volatile.

However, markets are likely to react more to the economic recovery and corporate earnings, which are expected to be robust. Overall, the year is expected to be positive, albeit volatile one.

Q) Any specific target you have for Sensex or Nifty for FY19?

Bhatnagar: We would not like to give any specific targets. If the economic growth picks up, earning pan out as expected, and global environment does not deteriorate further, FY19 can broadly play out in line with FY18.

Q) Any particular sector which is likely to hog limelight?

Bhatnagar: Government has announced a slew of measures to support the rural and agricultural economy like hiking MSPs, infrastructure spending etc which are likely to boost rural income. Rural consumption is going to be a key theme going forward and allied sectors like FMCG, Auto, cement, consumer appliances etc are likely to remain in focus. Oil & Gas is another space that we continue to like.

How is the IPO pipeline looking for FY19?

Many good IPOs are likely to hit the markets both from PSU & private space in FY19. The problem is that most of them are priced to perfection and leave little listing gains for the investors. Overall, quality names would attract robust demand but mediocre ones should struggle, unlike last year.What is your call on public sector banks?

We continue to be underweight on this space as the news flow continues to be heavy and NPA concerns are not over yet.

After this recent correction, do you think inflows into MFs which picked up pace in 2017 could now taper off or see some redemptions?

With the kind of run up that we have seen in last 2 years, some bit of profit taking is natural. However, with SIP book of Rs 6,400 crore plus across more than 2 crore folios, inflows are likely to remain robust.

Buoyed by increased financial literacy and access to sophisticated advice, investors are now aware of long term return potential of equity as an asset class and its role in long term wealth creation. They are investing for longer duration and at-least till now have been resilient to the volatility.

Any top five sectors which are looking attractive?  Which are the sectors you are underweight on?

FMCG, auto & auto ancillary, oil & gas, construction and allied sectors and consumer non-durable space are our key over weights while BFSI and IT are our key underweights. Within BFSI, corporate lenders continues to be plagued by NPA issues, For NBFCs, valuations, increase in interest rates and increased competition are a concern. We continue to like retail lenders in banking space. For IT, demand environment continues to weak and margins continue to be under pressure.FIIs seem to be bailing out markets. Do you think they will continue to remain major buyers in the equity market?

As central banks across the world review their monetary policy stance, liquidity is getting discerning. We expect FIIs flow into equities to remain negative not only in India but entire emerging market basket for some more time.

In which kind of schemes are you witnessing inflows?

We are witnessing inflows into the large cap, and tax saver, while flows into mid cap scheme are somewhat muted.

Do you feel there could be a shift from equity to debt because of volatile markets?

Over last few quarters, there had been a dis-proportionate allocation into equities, so some bit of rebalancing of portfolios towards debt is not ruled out and is in fact healthy.What are the cash levels in your schemes?

Normally, we like to be fully invested in the markets. However, due to market volatility we have increased the cash levels to 7-9 per cent across schemes.What is your advice to investors at this point and time?It’s important for an individual to have a proper financial plan in place, according to his goal, time horizon and risk appetite. Consider diversifying across several asset classes. Stay invested in the markets and do not worry too much about short term volatility.

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