The Hindu Business Line : ‘Rate softening will have positive effect’

Mr Sanjay Sinha, Chief Investment Officer of SBI Mutual Fund, remains positive on the mid-cap space despite the market decline. He feels that the softening in interest rates would be positive for the economy. He added that the fund has picked up stocks in banking, financial, engineering and the construction space during the recent fall. Excerpts of CNBC-TV18’s exclusive interview with Mr Sinha:

Do you think market has stabilised after the recent fall?

If one is looking for long-term stability in the market, they’ll have to wait for bad news flow on the global front to subside. We don’t know as to when that will happen because earlier we thought the US sub-prime crisis and the size of that, was the key issue that we would have to deal with. But we now find that it is infecting the credit rating of bonds, insurance and so on. So therefore, I think it will be a couple of months before we have all this bad news coming to an end. In this scenario, while the Indian economy has by and large decoupled from what’s happened in the global economy, our financial markets are inter linked. Therefore, we will have to suffer some pain, which the global capital markets are facing at this point of time.

What’s your sense of economic fundamentals right now? There’s the GDP slowdown, industrial growth numbers and even the last quarter earnings, which weren’t too good. It has both merits and demerits, in the sense that there was a monetary tightening that had happened in the country and it had to lead to some amount of slowdown in the various economic engines. That’s what we are now facing in terms of the industrial output now down to 7.6 per cent growth.

Going forward, if we see the rates softening in the country it is good because it is coming at a time when there is an extremely strong need for our capacity expansion. If that’s going to happen in a scenario where interest rates are benign, it will be positive going forward.

So, while the current economic statistics are definitely disquieting, I should look at the future. I think the future looks a little better than what it was a few weeks back. That’s where I feel that if I have to take that call on what it will do to the capital markets, I have to look into the future. Therefore, if the future news is going to be good in terms of the economic statistics, the capital markets should also look up once the global markets becomes stable.

What have you done with your mid-cap positions? Have you had reason to decrease your cash levels and actually invest a bit more or are you cautious on this space?

No, we have a positive outlook on the mid-cap space because if you look at the calendar year 2007, while the broader index appreciated by about 47 per cent, the mid-cap index went up by almost 68 per cent or so. The small-cap index did even better by going up by 94 per cent.

I think in 2008, we will see the local fund flows in the equity markets playing a larger role. The local flow has a far more favourable orientation towards mid-caps and we have quite a few stories happening there.

So, in our funds, what we’ve done is, wherever there was cash in the mid-cap fund, we have deployed much of it. Q: Across fund categories that SBI MF has, what kind of total cash holdings would you be having at this point in time?

A: The cash holdings would vary from fund to fund. In a couple of funds we had raised the cash holding to declare a dividend and that actually came in at a very providential time because we had raised the cash holdings and the market tanked. But we have now deployed a large part of that cash holding and we intend to declare a dividend anyway.

If you have to take a ballpark number across funds, if you have to put out a rough number, I would say that we would have between say 5-8% cash as a fund house.

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