The Hindu Business Line : ‘In current environment, equities are not the most-favoured asset class’

Mumbai, Sept. 14 Mr Kenneth Andrade, Vice-President of Equity at IDFC Mutual Fund, having over 14 years of experience in equity research and fund management, spoke to Business Line about the mutual fund scenario in the country.

Infrastructure Development Finance Co (IDFC) took over Standard Chartered’s mutual fund business in India in March. Currently, the fund house manages assets under management to the tune of Rs 12,255 crore.

What do you have to say about markets at this point?

In the current macroeconomic environment, equities are not the most-favoured asset class, so there is a lot of money going into alternative assets, and as long as the fixed maturity plans, and debt markets continue to give double-digit returns, the appetite for equity will be low. I think that the way we are valued or the way the market is trading, we have a market which is already reasonable in terms of multiples.

Three of the four diversified equity schemes that you manage at IDFC have outperformed their benchmark indices in the past one-year period. Your Premier Equity Fund has outperformed its benchmark by a huge margin. What strategy have you applied to manage the fund?

We have about 35 stocks in the premier portfolio, (a mid-cap scheme). If we look at the top 10 stocks, which form about 30-35 per cent of the portfolio, we have done a simple thing of picking up components of businesses that we believe will do well over the next couple of years and put in the best companies from that segment of the market.

From some of the large trends playing out in the Indian economy such as agriculture-related business, education, etc, there will be different set of companies doing well in each segment. So we try to build an entire portfolio like this.

The only way you can de-risk a mid-cap portfolio is by buying the best in its class. And while valuations play a role of paramount importance, at the end of the day you have to see the growth prospects in such stocks. Take the appropriate risk and build a portfolio ahead of its time in its cycle. It will underperform at some point of time, but if the calls are right, hopefully, it will keep its head above water.

What are the cash levels you usually maintain?

We don’t maintain much cash levels. Usually when you run a large-cap diversified fund, there are very low cash levels. In Imperial there was 15 per cent, while with Premier Equity Fund, which is not a very liquid portfolio as it consists of largely mid-cap stocks, we were holding about 20 per cent cash.

What kind of people are investing in the mutual fund space? And what are the more popular products?

We have seen a steady stream of SIP’s and STP’s (systematic transfer plans) building up in the system. Not too much of one-time investment money is coming into schemes, but there have been quite a few inquiries by first-time investors too.

What is your advice to mutual fund investors?

Keep a steady asset allocation profile. There could be short-term temptations of higher returns but one must understand the risk profile of such returns. Keep reviewing your investments periodically. Also they need to keep away from any exotic products.

With so many players entering the MF space, will they create a new market for themselves or end up eating the share of existing players?

As a business, the asset management space has been extremely fragmented anywhere across the world. There are some developing markets, which already have a larger number of AMC’s than we have. More number of players are welcome as they would help expand the market rather than fight for the same market share.

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