In case of a hung Parliament, it is better to be holding higher levels of cash, says PVK Mohan, Head — Equity at Principal Mutual Fund. In an interview with BusinessLine , Mohan discussed Q4 performances, fund flows and more. Excerpts:

With the General Election almost over, what would be the next focus for market participants like you?

The focus would be on the results for Q4-FY19 and management commentary for FY20, the Budget by the new government with steps to revive growth and contain fiscal deficit. Globally, it would be on the US-China trade negotiations and Fed outlook on interest rates.

But, several companies have declared financial results for Q4/FY19 till now. Your view on their performances? Any sector or stock beat your expectations?

The results have been slightly disappointing, compared to expectations with more companies missing estimates than those beating. Sectors which disappointed were financial, auto, industrials and oil & gas; FMCG too surprised negatively due to subdued volume growth with strong emphasis on rural markets being very weak.

In financial, provisioning costs remained high even as slippages moderated. IT results were in-line, while cement surprised positively due to better volumes and pricing. Overall, it seems that earnings estimates for FY20 would see some downward revision.

There is talk of a hung Parliament. Are domestic MFs prepared for such an event?

It would be difficult to be fully prepared if indeed it does happen; but one can partially cushion the portfolio by holding higher levels of cash.

Given the elevated level of the market, which are the sectors that look promising in 2019? What is your overall outlook for equities?

We expect low teen returns in 2019 (calendar year) with a more broad-based performance as the year progresses, especially post formation of stable government and improvement in economic growth.

Do you expect robust fund flow into Indian markets from domestic investors to continue in 2019, especially given the crash in small- and mid-cap stocks?

We expect domestic flows to remain moderated in CY19 but could see a pick-up once economic growth outlook starts improving.

How is the response to your small-cap NFO? Could you throw some light on the investors’ profile?

It has been good given the near-term uncertainty around the elections. Principal SmallCap is being chosen by those investors who are willing to accept higher volatility with the objective of potentially higher returns.

At a time when even debt funds are facing corporate governance issues, how are you prepared to handle such sudden shocks as a fund manager?

We keep constant vigil on our portfolio companies for signs of any such issues; we interact with the managements and try to figure out if there are any negative shocks or surprises in terms of governance. At times, we have no choice but to react to adverse developments.

Keeping a portfolio spread across several stocks, focussing on companies with a strong track record and long history, depth of management, etc, and periodically revalidating our investment hypothesis are what we do constantly.

What is your advice to retail investors during this volatile period?

In times of such volatility, investors should not panic and act in haste. Stick to long-term goals, keep investments aligned with long-term objectives, preferably avoid trading and approach equities with a long-term view and keep the faith.

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