The Hindu Business Line : ‘Indian MFs cannot make more returns than FIIs’

Mr V. Ramesh, CEO, Prabhudas Liladher Financial Services, replied to Business Line’s queries on various trends in the Indian stock markets through an e-mail interview.

Excerpts.

As someone who has a wide exposure in mutual funds (MF), how do you explain the frequently-seen opposite movements as between the MFs and the foreign institutional investors (FIIs) when it comes to stock market investment? Are the Indian MFs making more return than the FIIs?

One must understand that the investment philosophy of a mutual fund and that of an FII are perhaps opposite. FII is in the business of investment and it looks for quick returns on an ongoing basis. MF, on the other hand, is a long-time player and has the responsibility of providing good returns to the investors, whose money it is holding on trust, for years to come.

Thus, there can be opposite movements depending on the view that FII and MF are taking. Further, any impact in their home country will impact FII’s outlook and approach. Not so for MFs.

Indian MFs, logically, cannot make more returns than FIIs because of two aspects. One, MFs are working in a highly-regulated area on all aspects including exposure to stocks. It is not so for FIIs; they have limited constraints. Second, the rupee appreciation has also benefited FIIs, not so the MFs.

An oft-cited statistic is that the share of stock market investments in the total savings is at a single digit in the country. What are your suggestions to grow this number?

Customer awareness is the only key to the solution. A typical investor, who has his money in the bank, is afraid of stock market simply because he does not understand it. Once he understands the levels of risks, and also when he has the convenience, he will start moving into the MFs, and thus to the stock markets.

Can you explain the portfolio management and portfolio advisory schemes that Prabhudas Liladher offers?

Prabhudas Liladher offers two types of schemes, one with a short- to medium-term perspective called Equitra and another with medium- to long-term perspective called Equigrow. Equitra is a scheme where it looks for trading opportunities on specific blue chip, and highly liquid stocks. These schemes come with less risk and the outlook is for short- to medium-term.

Equigrow is a scheme which provides an opportunity to participate in the growth of the stock with value pick and bottom-up approach across the market cap. Here the investment is with medium- to long-term outlook and the investor can invest in this scheme with a two-year horizon.

Which sectors are likely to declare robust earnings in the fourth quarter of 2007-08?

Fast moving consumer goods and pharma are likely to give good results. Robust earnings may be doubtful since there are reports of many companies taking exposure into derivatives and having got hit. This would be clear only after the results are announced.

What are your top stock picks for the long-term investor?

With the current valuation, there are many stocks which look good with a long-term view. When I mention long-term, it is three-five years. Bank stocks particularly look good, besides infrastructure-related stocks. The three stocks that I closely watch could be YES Bank, Axis Bank, and REC.

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