The Hindu Business Line : ‘Sectors with higher domestic orientation will fare better’

As the Fund manager of two successful equity funds – Kotak 30 and Kotak Opportunities, Mr Krishna Sanghavi has a distinguished track record. He is now Vice President – Equities of Kotak Mutual. In an interview with Business Line, Mr Sanghvi answers queries on the above funds and share his outlook on the markets.

Excerpts from the interview:

The cash levels of many diversified funds have gone up significantly. But Kotak 30 and Kotak Opportunities have been 85 per cent invested in equities throughout this volatile phase. Could the strategy of exit and re-entering at attractive levels (given the protracted sideways movement in the market) not have yielded better results?

As a fund house we believe that the primary allocation to equities is done by investors in consultation with their advisors and that the investors having opted to be in equity as an asset class have given money to fund managers for investing.

Accordingly we have decided not to take aggressive cash calls in the portfolio.

Kotak Opportunities had a substantial exposure to mid-cap stocks last year. Do you see value in mid-caps? Are valuations likely to return to earlier levels ?

Mid-cap stocks usually offer higher risk and return proposition. We see value in select mid-cap stocks. But, for mid-cap stocks as a segment, the funding issues, pressure on inputs and reduced risk appetite among investors warrants a longer time-frame for mid-caps to revert to earlier valuation levels.

Has the impact of higher interest rates and commodity prices already fully absorbed into India Inc’s financials? Which sectors are likely to come out less scathed by the macro concerns?

We believe that we are closer to the interest rate cycle peaking and hence feel that the quarterly results over the next two reporting seasons will show a full impact of the higher interest rates. As regards commodity prices, we have seen significant correction in prices in recent past and hence think that the impact of higher prices in the past has been absorbed. The Indian economy is driven more by domestic consumption and infrastructure creation and hence we are relatively less linked to the global economy and the crisis therein. Thus we believe that sectors having a higher domestic orientation will fare better.

Do you see any hope for the Indian markets to revive given that near-term FII inflows are likely to be tempered? The crisis in the US has led to a reduction in the risk appetite amongst the global investors and hence there may be a slowdown in the flow of private equity investments in the near term. We believe valuations in the Indian market offerian attractive risk-reward ratio for investors with investment horizons of 12-18 months. Domestic institutional investors have the potential to provide necessary support to the markets.

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