The Hindu Business Line : ‘Well-crafted financial plan helps to weather volatility over long term’

Kolkata, Sept. 2 Long-term investors are better off adopting a bottom-up approach and investing in companies with good fundamentals across market cap ranges and sectors… If that quip sounds too clichéd, don’t fret. For it comes straight from the heart of Mr Sivasubramanian K N, Senior Portfolio Manager – equity, Franklin Templeton.

“We believe that sectors that can piggyback on the domestic consumption theme such as retail banking, consumer goods and automobiles as well as on trends in domestic infrastructure spending (such as construction and capital goods) may offer investment opportunities for long term investors”, he notes.

Excerpts.

Now that the broad market is crawling back again, do you see scope for investors to book profits before the next plunge happens?

The long term growth potential of Indian markets remains positive and investors need not change their investment strategy because of short term movements.

While the answer varies from individual to individual, our advice continues to be simple – there is no ‘right time’ to invest and it is the time you give to your investments that matters.

Markets go through cycles over time and a well-crafted financial plan helps you to weather this volatility over the long term. Research has shown that the probability of attaining financial goals is much higher when you follow this approach, rather than trying to juggle around investments between asset classes, and time your investments based on market cycles.

What sort of cash holdings do you have in your funds?

We believe in being invested in the equity markets to the maximum extent possible, irrespective of market conditions.

Our cash position is determined mainly by prevailing liquidity requirements and portfolio changes, and is not due to views on short term market conditions.

Is there any element that concerns you particularly? For instance, are you worried that banking sector reforms will get stalled, leading to problems for Indian banks?

Political wrangling has resulted in reforms in key areas being stalled in recent years. At the same time, a political consensus has emerged on the need for reforms and despite change in governments, the overall direction of the reforms programme has been positive.

In that sense, it is just the democratic process playing out. Investors need to look at long term demand/supply situation for goods and services on the back of expected strong economic growth over the coming decades.

As for your question on the banking sector, the current rate scenario might impact bank NIMs and loan growth over the near term.

However, we expect the sector to do well over the medium to long term, on the back of a growing economy as indicated by the strong economic numbers so far.

What about potential risks…

The global liquidity situation has the potential to play spoilsport over the short term.

In recent years, high liquidity and financial innovations such as securitization and credit default swaps helped in diversifying risk and reducing risk premiums. However, this has changed in recent months.

Other risks include energy prices, infrastructure bottlenecks, lack of availability of skilled professionals, growing current account deficit and reforms becoming a prisoner of political wrangling.

Given the expected robust GDP growth and the expected further improvement of corporate India’s earnings quality, while sentiment could be impacted over the short term due to these risks, we believe that the sound fundamentals will prevail in the end.

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