The Hindu Business Line : `Underlying potential favours equity'

MERE volatility in the stock market is not stopping Principal Mutual Fund, which can now look forward to taking over the schemes of SUN F&C MF, from taking significant bets on equities. Or so states Mr Rajat Jain, Chief Investment Officer of the fund house that manages over Rs 3,650 crores in assets (as on January 31, 2004).

As Mr Jain puts it, the quest for getting one's hands on "superior stocks" is a relentless exercise. Excerpts from the interview.

What appeal does the equity market hold at this juncture?

The realities are clearly defined. The market maintains its underlying potential, backed by good economic reasons. India's GDP has grown and there are signs that this growth will be sustained. But you have to be aware of a few near-term issues as well, which may temper expectations for the time being. There will shortly be large-scale arrival of PSU paper. National elections are coming up fast. Each of these factors will play a role.

Also, corporate performance will be keenly watched as the financial year comes to a close. As companies declare their end-March numbers, the prospects of the market will become clearer. Fund managers like us will be alert to whatever changes that may occur.

As for your latest proposal, the international fund, how will Principal Global Investors contribute?

PGI happens to be a major arm of the Principal Financial group and may be called upon to render investment advisory and miscellaneous services.

This outfit has considerable experience, gained from handling $120 billion in assets, a part of which is in international equity products. We will draw from its understanding of the market and may even make use of PGI's currency desk in London too.

PGI follows a few key principles while researching stocks. For instance, it finds out whether the business fundamentals of a certain company are improving and whether its growth can be sustained over a period of time.

It also goes by factors like rising investor expectations on a stock and attractive relative valuation. The central themes are sound enough — catch the stocks early and don't overpay for what you are buying. Let me add here that the scheme will be benchmarked against Morgan Stanley's world index.

Wouldn't RBI's strict regulations on such investments be a constraint too?

Well, there will be 47 companies from across several important regions to choose from and that's quite a fairly decent number to start with. It will cover a number of sectors. The idea is to create a diversified portfolio, keeping in mind the basic objectives of the fund.

However, RBI is stringent in the sense that its norms will not allow us full access to all sectors. That includes technology and banking.

But names like P&G will certainly be within our reach. There are giant companies that benefit from cash flows generated by their affiliates and subsidiaries operating in far-away markets, which may even include promising ones like China.

Also, I feel that the regulations on investment will be revised as time progresses.

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