Equity markets may give investors very good returns in the next 3-5 years if a stable government comes to power, says Yogesh Bhatt, senior fund manager, ICICI Prudential AMC. In an interview with Mithun Dasgupta, he says mid cap and small cap stocks will have good value. Edited excerpts:
Equity markets have witnessed a pre-election rally, with foreign institutional investors pumping more money into Indian equities and bonds. How the markets are expected to react post elections?
There is a good possibility that there could be good stable government, let us not debate who will come. If a good, stable government does come, then our equity markets will give very good returns. Till elections we shall see market volatility, but I think post elections, if a stable government comes, we will see positive movement and we may see good returns in the next three to five years.
The country?s retail investors traditionally shied away from investing in equity. Going forward, do you see that trend change slowly?
Yes, in the asset class, equities are ignored. In individual balance sheets if you see, out of the R100, one has only R3 in equity. About 65-70% would be either real estate or gold. But according to the data available with us, it is coming down because last year gold had given negative return of 28%.
So, we are hopeful that slowly and steadily, people will start investing in financial instruments and in between equities will be a very good opportunity. Moreover, if you see the long history of 15-20 years, there is always a cycle which comes after seven and seven-and-half years. In every seven and seven-and-half years, there has been a good equity market. We saw correction in 2008, and by 2015 that cycle of seven-year is expected to get rolled.
Sector-wise, which stocks are expected to give good returns?
The most expensive sector right now is FMCG. So, we have stopped taking lumpsum money in FMCG funds, we are only allowing SIPs (systematic investment plans). Even some IT and pharmaceutical stocks become expensive. There are some good opportunities available other than these three sectors. But specifically, mid cap and small cap stocks have good value.
After launching close-ended value fund series 1 and 2 in September and November last year, you have launched value fund series 3. What prompted you to launch another close-ended equity fund?
Apart from our positive outlook for India?s equity markets, we think opportunities are still available in the mid cap and small cap space. This is the fund where about 60% of our corpus would be deployed in the small and mid cap stocks. There will be a sectoral cap as we will not invest more than 20% in any one sector. And in the newly-launched fund, we will have a portfolio of only 35-40 concentrated select stocks.
How is the value series 3 different from that of 1 and 2?
As a concept and theme, it is same. But the portfolio will not be similar. If you compare between value 1 and value 2, which are now out, we are not having common stocks in mid cap as well as small cap categories. Accordingly, we will not have any common stock in mid cap category across the three value series, but in large cap there could be a possibility.
