People should not let that (market conditions) over-run them just because there are near-term concerns, says Mr Bhupinder Sethi, Co-Head Equities, Tata Mutual Fund.

In an interview to Business Line , Mr. Sethi, who has over 17 years experience in the equity research and fund management in the capital market, speaks about volatility and market conditions as also strategies investors should adopt in trying times.

Where do you see the market going?

There is clear nervousness in the markets with what is happening in Europe. Domestically, high interest rates, fiscal deficit and inflation have impacted the macro-economic environment. So all of this has led to an earnings downgrade as far as companies are concerned. Therefore, if you are a long-term investor, any opportunity that comes because of macro-economic concerns should always be used to buy good quality companies scrip using the depression in the market.

In today's market conditions, should retail investors buy?

If any retail investor has to create wealth in the longer-term, he should invest in natural resources, real estate, bullion or scrips of good quality companies. The equity market offers you the opportunity. So, if you are investing with a six-month to one-year perspective, it can be very challenging. But, if you have a long-term horizon - which I think most investors should have because equity markets have shown that in the longer-term they give very good returns. The BSE Sensex in the last 32 years has given 16-17 per cent CAGR returns.

Another point to be kept in mind is the magic of compounding. Even a few percentage points more really adds up to tremendous value over the medium to long term. But with good returns comes a lot of volatility.

Is this where the mutual funds come in, as they are able to do stock-picking and thus, beat the market?

In that sense, yes, because (everything else remaining the same) we have a dedicated team of analysts who are totally dedicated to finding good quality companies in terms of always assessing their business prospects. Obviously MFs are better prepared than any other investor, as they invest time and energy in tracking companies.

Then why are all mutual funds not able to do well in a bad market?

In India most of these mutual funds over longer-term have been able to create significant alpha (excess returns over the benchmark's returns). If you look at the alpha generated by the mutual fund schemes over the last 10 years, it could be much higher than the alpha generated by schemes over the last five years. As more and more schemes come into the market, the markets get more and more efficient. Therefore, the ability to beat the market, by a big gap, obviously reduces in a more efficient market. Mutual funds over a longer time horizon have always done a good job. The best way to beat volatility is through Systematic Investment Plans i.e. investing in equity markets in a systematic manner. This takes away the timing element.

SIPs have done well this year. Since when have you seen SIP numbers increasing?

It's a progressive thing. I have seen a very welcome change as far as the IFAs and distributors are concerned. They are bringing retail investors into the equity markets in a systematic manner. Over a period of time, our fact-sheets carry the returns which the investor could have made through SIPs. As the awareness has increased, over a period of time, it has continued to build up. SIPs take away the timing element. Therefore, the chances of the investor going wrong are lower. It also locks in people for longer term.

What are the sectors that you are looking at right now?

Given the rupee depreciation, clearly the outsourcing sectors like Pharma and IT look attractive. From a thematic point of view in the medium to long-term we like the consumption story in India. Apart from that, because of the current correction in the market, there are several company specific opportunities which have come up and we are being stock-specific.

FIIs were net sellers in 2011. Do you think 2012 will see a reversal and more investment happening?

Given the fiscal problems that developed economies are facing, their growth pace will be slower than what emerging economies are expected to record. Global institutional investors believe that they are still under-invested in emerging economies, given the size, scope and opportunities that lie in them. We believe longer-term money will still flow into emerging economies.

sneha.p@thehindu.co.in

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