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The present geopolitical context could result in a revival in manufacturing investments over the next 5-10 years: Prathit Bhobe, CEO & MD, Tata Asset Management
The present geopolitical context could result in a revival in manufacturing investments over the next 5-10 years: Prathit Bhobe, CEO & MD, Tata Asset Management

'Pharma returns should be better than market over 24 months': Tata Mutual Fund

'Currently an equity investor’s emotion can be summed up as: anxious in the short term but bullish in the long run. That should be no reason to jump out of equities' , says Prathit Bhobe, CEO & MD, Tata AMC.

Equity investors are anxious about their investments amid covid 19 outbreak. Certain sectors like Pharma which were mute for last few years emerged as the toppers. How long will the similar performance continue? Which are the other sectors not to be missed? Prathit Bhobe, CEO & MD, Tata Asset Management answers some of the most common questions for a retail investor to sail through this uncertain period with ease. "Besides, some of the new areas which are benefiting post-Covid like chemicals, API, electronic manufacturing, Digital transformation are better represented by the mid caps and small caps, says Prathit Bhobe. He also advise what should a multi cap mutual fund investor do given Sebi's new portfolio allocation rules for the category.

Where will the markets head. What is your view? 

Markets are trading near or about its fair value if one considers that the earnings downgrades (at Nifty-50 level) have stabilized and certain sectors are in fact seeing earning upgrades. Also, India’s valuation premium to other emerging markets is back to its historical average range of about 40% which implies that the correlation with global markets will remain high till we get more evidence of the sustainability of the domestic economic recovery and/or the health of the financial sector.

Which themes would you recommend to invest with a short term and long term view at present?

Covid has resulted in certain tailwinds for sectors like IT services, pharma, telecom, parts of FMCG sector, electronic manufacturing and chemicals. We also believe that the present geopolitical context could result in a revival in manufacturing investments over the next 5-10 years.

Value-oriented funds have disappointed investors for a few years in a row now. What is your view on value investing? 

Value investing has lagged growth investing because a lot of sectors and stocks which qualify under traditional parameters have had issues relating to Environmental, Social and Corporate Governance (ESG). In addition, the other segment which traditionally qualifies is the cyclicals - both domestic and global.

We believe in “Value with triggers" as part of our investment philosophy and not buying value for the sake of value. For value investing to work, identifying catalysts for re-rating (could be a combination of earnings upgrade cycle, management change, better capital allocation, privatisation) is critical.

Pharma sector has gained limelight in the last few months due to superior returns the category has generated. On an average pharma sector mutual funds are giving 55% returns. Do you believe similar returns form the category would continue? For how long?

The pharma sector is recovering from a 3-4 year downcycle. Slower generic pricing decline, healthy complex generics pipeline and improved balance sheets were present even before covid. Even though a lot of the returns have been front ended, covid has added further tailwinds especially on the API and given the product pipeline, returns from pharma sector should still be better than the market over the next 18-24 months.

Will the results of the US election have an impact on the markets?

As mentioned earlier, the correlation with the global markets will continue till the domestic economy can fully stand on its own. To that extent, the impact of US elections will be felt on the domestic markets. Any sharp pivot in the US domestic policy scenario (fiscal or monetary) remains a risk.

A recent Sebi circular on ‘portfolio allocation of multi cap funds’ raised a lot of hue and cry among investors. Some investors are asking if they should exit multicap funds for now. What would you like to tell these investors?

We believe that usually markets are very efficient. There will be opportunities to invest across market capitalisation. As the name suggests, investors made a conscious decision to invest in a multi cap fund and hence as per the new regulation it will represent the same in the portfolio. 

Should new investors look to invest in multi cap mutual funds? Or, should they wait till January next year? Kindly advise.

In our view, mid cap valuations were trading far below average. After the recent up move, they are in the neutral zone vs. the historical. Small caps are more attractive and relatively cheaper. Besides, some of the new areas which are benefiting post-c like chemicals, API, electronic manufacturing, Digital transformation are better represented by the mid caps and small caps. Hence multi cap and Large & Mid cap categories look more promising in terms of potential.

Equity mutual funds inflows have been gloomy for the past two months. Some experts believe investors are booking gains while others say mutual fund investors have shifted to direct stocks. What is your view? What would you like to tell investors?

Equity is a non-linear asset class and one should not take a myopic view of markets or macro. It is very difficult to say if clients are booking gains and going into another asset class or moving to direct stocks. Doing the latter is not reducing risk for sure, if on one hand the investor is booking profits in a diversified fund and taking individual stock bets.

Currently an equity investor’s emotion can be summed up as: anxious in the short term but bullish in the long run. That should be no reason to jump out of equities. It is usually observed that waiting for a correction has been more painful than going through one. It is very difficult to cash out at the peak and/or enter at the bottom. We do not know of anybody who can do that to perfection. It is even more difficult to say whether it was skill or luck, since only the former is repeatable. Suffice to say, if your time horizon is generational, should you be looking at your portfolio quarterly?

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