The Hindu Business Line : `Market could remain range-bound over medium term'

Let me refer to our flagship equity product, Principal Growth Fund. It is overweight on petrochem, auto & auto ancillaries, oil & gas, IT and cement. At the same time it is underweight on pharma, banks and FMCG. In fact, we have no exposure to the last two sectors.

The basic strategy is to identify opportunities, both sectoral and stock-specific, ahead of the market and depending on relative valuations of different sectors and stocks. Accordingly, the portfolio composition could change on a dynamic basis. The portfolio is a mix of large-cap and mid-cap-cap stocks.

What are the major issues that are likely to impact the market over the medium term?

The equity market could remain range-bound over the medium term, as it has in the last couple of months. We must realise that the Indian market has been a strong performer in the recent past vis-à-vis other emerging markets. It could therefore witness profit-booking at higher levels.

On the downside, support could arise from inexpensive valuations, reasonable amount of liquid funds in the domestic market and the benefits rendered on capital gains taxes by the recent budget. Apart from such considerations as valuations (against growth estimates and compared to those in emerging markets) and FII flows, the other major issues are international prices of crude oil and other commodities, inflation, interest rates, rupee movement vis-à-vis the dollar, adjustments in earnings estimates of agricultural growth and revisions in earnings estimates of large corporates. The progress of the collation-led government, especially as regards FDI investments and PSU disinvestments, will be crucial too.

The resumption of IPOs could also be an important trend, one that could impact the market in future.

Would conservative investors begin to consider equity funds given debt funds' recent performance?

Well, it is important for investors to have an asset-allocation strategy across debt and equity products. This could vary with age, income, risk-appetite and investment horizon. While exposure to equities is likely to increase, it is also important to take into account the risk associated with equities while allocating one's assets.

Are there any sectors that would soon see a re-rating?

We are positive on the petrochem cycle in Asia. We are also aware of auto stocks that have corrected in recent weeks - on account of rising interest rates, increasing input costs, increasing fuel prices etc. These could rebound as most of the concerns appear to be priced in.

Also, the budget has tried to give a thrust to infrastructure... so cement and construction sectors could see a further re-rating.

The oil sector, which has seen a sharp de-rating in recent months, could be re-rated on account of the flexibility (though limited) now accorded to marketing companies to change the prices of petro products in line with changes in international prices.

The IT sector, among the best performers in recent months, could continue to emerge as a preferred area. The key factors here include the depreciation of the rupee vis-à-vis the dollar, stabilisation in billing rates, rising crude oil prices and insulation from the vagaries of the monsoon.

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