Sashi Krishnan

• Educational Qualifications: Post-graduate (Economics)
• Work Experience: Before joining Bajaj Allianz, he was with DBS Bank Singapore as vice-president (South and South East Asia). He also worked for 13 years with Unit Trust of India, managing debt and equity funds in excess of Rs 18,000 crore.

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Taking calls on large and mid-cap stocks requires a different approach. How do your strategies vary across categories?

We broadly offer four kinds of equity funds––large-caps, mid-caps, ethical funds and index funds. The investment strategy for each category is different. For large-caps, we intend to have at least 95 per cent of investment in stocks with a market cap of at least Rs 10,000 crore. In mid-caps, we invest in stocks that are in the range of the lowest market cap of the index to the largest market cap of the mid-cap index.

We also have a cut-off: we do not invest in stocks that have a market cap of less than Rs 500 crore. We maintain the investment philosophy that the fund can neither be leveraged nor invested in derivatives, which is part of the regulation anyway.

As for large-cap funds, we broadly follow a top-down strategy and take a sectoral call. If we are positive on a sector, we look at the large-cap stocks there and then decide where to stay invested.

However, in mid-cap funds, our strategy is stock-specific. We identify the stocks and look at a few large themes. We invariably look at stocks which we think are large-caps stocks of the future, or stocks that are, primarily, niche players. We also look at proxies for large-cap stocks.

In Investment Insights, the monthly update on Ulips, you said most macroeconomic indicators are showing a positive reversal. Which indicators are they?

Let’s look at GDP first. GDP growth in the first quarter of 2009-10 was 6.1 per cent. Of course, there is a slowdown: the decadal average is 7.5-8 per cent. But many in the market believed we would clock below 6 per cent.

Second, the index of industrial production (IIP) numbers for the month of July indicates that industrial production has been strong, rising from around 2.1 percent to 6 per cent. A large part of the recovery in the GDP is coming from the industrial sector. Similarly, a large part of the recovery in IIP is coming from manufacturing. There is no doubt that services have slowed down. In agriculture, there will be a slowdown, but there is some recovery in the economy.

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Fund Performance

Compound annualised growth rate (CAGR) as on 30 September, 2009

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Valuations are at a high. Where do you see the markets going from here? What sectors are you banking on?

I agree with you that valuations are not cheap. But as valuations are relative, you should look at stories that are comparatively cheaper than others to get in at some point in time. That’s because the only other option is maintaining the asset allocation decision: whether you will be in cash or in equity. If you wish to be in equity, then, besides highest growth, you will also need to find where you get the best value.

Domestic consumption has been robust and will continue to remain so. Private consumption is increasing quarter on quarter, and the government continues to spend a lot of money. So, the consumption basket will in itself be very strong. We have played and continue playing on the domestic consumption story, and consumer goods, pharma, and two-wheelers are extremely strong themes.

The other theme that I think will play out in the long term is infrastructure. When investment-led growth returns, it will be led by infrastructure. Growth, according to me, should come from three broad areas––domestic consumption, investments and exports.

In the short term, the only certainty in the equity markets is volatility. But in the long run, economies like India will continue to grow. I would believe India’s decadal growth could be at 7.5-8 per cent, but it can easily go up to 10 per cent when we enter the next decade.

What, according to you, are the potential concerns and issues for the economy on the way ahead?

There will be some concerns. We need the requisite skill set to clock 10 per cent growth. We see such a skill set in place once we achieve 70-80 per cent literacy.

The second big concern is to boost agriculture growth because once agriculture reaches a certain level of growth, it will free up resources to reallocate to other sectors like services and manufacturing.

The third important thing is fiscal consolidation. Unless you have fiscal consolidation and you bring back the fiscal deficit to the 5 per cent level, it will be difficult to manage the economy.

Insurance portfolios are supposed to own stocks that deliver in the long term. A mutual fund portfolio may not be much different. Why?

There will be a slight difference between a Ulip portfolio, a mutual funds portfolio, a hedge fund portfolio and a pension fund portfolio as every fund manager invests in stocks he thinks would deliver him the best returns in both the short and the long term. Insurance investors are much less momentum players than long-term investors––so if we see value in a stock today, we will stay invested in it.

The bigger difference is that the composition of an insurance portfolio is a lot steadier to evaluate over time. Maybe, at one point in time, all look the same, but a lot of activity happens in and out of a mutual funds portfolio, which is not the case with an insurance portfolio. I will intuitively believe that there will be larger churn in mutual funds.

sunildhawan AT outlookindia DOT com