Mr. Anand Radhakrishnan, CFA
Chief Investment Officer (Franklin Equity - India)
Franklin Templeton Asset Management (India) Pvt Ltd.
Mr. Anand Radhakrishnan is Chief Investment Officer (Franklin Equity - India) for Franklin Templeton Asset Management (India) Pvt Ltd. Mr. Radhakrishnan is responsible for overseeing all the local equity funds. His responsibility includes mentoring all the portfolio managers apart from continuing to be the Portfolio Manager for some of the key products. He manages Franklin India Bluechip Fund, Franklin India Prima Plus and Franklin India Technologies Fund. Also he is co-portfolio manager for Franklin India High Growth Companies Fund and Franklin India Build India Fund.
Mr. Radhakrishnan has been in the investment management industry since 1994. He started his career with FT in 2004. His past assignments include Fund Manager, with Sundaram Mutual Fund for 8 years; Deputy Manager, Equity Research with SBI Funds Management Ltd.
Mr. Radhakrishnan earned his Post Graduate Diploma in Management from Indian Institute of Management, Ahmedabad in 1994. He earned his Bachelor of Technology degree, specializing in Chemical Engineering from Anna University, Chennai in 1990. He is a CFA charter holder.
Q. How and to what extend is the GST likely to impact the earnings of companies?
Answer: GST is bound to have a far reaching impact on the way businesses are conducted in our country. There could be some transient impact of GST on inflation as prices could notch up a bit till the system gets used to the implementation of GST. Over a period of time as manufacturers and service providers get the benefit of the input tax credit, transient inflation effect of GST will reduce. Organized players in the economy are expected to become more competitive against the unorganized sections of the economy which in turn will lead to gain in market share, thereby accelerating growth. Since listed companies are a part of the organized system, they could likely benefit from an increase in their earnings growth by about 2% on account of implementation of GST.
Q Which are the sectors that stand to gain and lose with GST coming into effect?
Answer: Consumer sector, capital goods and thermal power producers are likely to benefit from new GST rates which stand below existing tax rates. Telecom, Auto (luxury segment), alcohol, paints and cement may have a slightly negative impact from new GST rates being higher than existing rates. De-stocking of inventory on which old tax rates apply and input tax credit is lower could lead to near term disruptions. Initial teething issues like confusion over product categories, rates and taxation, the shift from unorganized to organized sectors impacting profitability of small businesses and general business uncertainty around the extent of benefit from input tax credit could moderately impact GDP in the near term.
Q What is your assessment of the market valuations? Where do you think are opportunities still present and which your team is working on?
Answer: Over the past 3 years between FY15 and FY17 aggregate corporate earnings were running below expectations (deceleration to low positive single digit growth). While the broader market earnings expectation for FY18 stands at 15-17%, we expect market to comfortably deliver anywhere between 12-13% earnings growth. That is significant improvement from what we saw in previous 3 years. With these expectations being met, we don’t see a significant valuation risk.
Indian markets have seen a considerable re-rating in the recent months buoyed by global liquidity and supportive domestic macroeconomic factors. S&P Nifty 50 trail PE has shot up from 21x (Dec-16) to 25x (July-17), though still below the peak levels of 28x in 2008. The 1-year forward PE for Nifty 50 at 17.2x (June) is still below the 2007-08 peak of 19.5x. Also the other parameters including price-to-book value of Nifty and market capitalization to GDP ratio stand comfortably below previous peaks, hovering around long term average levels. These factors lead us to believe that market is not in a valuation bubble and expected acceleration in earnings growth from the current year onwards provides comfort.
Q. The economy is showing mixed signs of recovery, especially w.r.t. slowing of growth rate to 6.1% and other indicators like manufacturing PMI and industrial production. What is your take on the actual recovery status of the economy after demonetisation?
Answer: Domestically, consumption-a key growth driver- is showing pronounced uptrend post demonetization (domestic retail sales, auto sales and oil consumption) well supported by exports. Select capex indicators (capital goods imports and LCV sales) have also begun to improve even as growth in other capex indicators remains muted. The immediate effect of GST implementation may be disruptive for inflation. Additionally, farm loan waivers by states could stoke inflationary pressures in the economy. Attempts by the government to achieve fiscal deficit target through buoyant indirect tax revenue growth and partial disinvestments (L&T, potential stake sale in Air India) could help to counter fiscal slippages. The government’s move to combine strategic policy reform measures with efficient execution prepares a favorable ground for sustainable long term growth, a key positive for equity market. Expectation of normal monsoon with decent spatial distribution, transitory impact of GST on inflation, improving consumption and moderate global crude oil prices are some of the near-term positives for the economy.
Q. What is your investment strategy at how are you playing the markets right now?
Answer: There are pockets of over-valuation in the market. But, there are cases of undervalued ideas among them. We at Franklin Templeton predominantly employ a bottom-up approach to stock-picking considering the long term fundamentals of the stock and crucial developments in the company and sector. While broad analysis of economy and various sectors is a starting point, the stress is on a deeper search for businesses and managements creating wealth, some of which could even be in out-of-favour sectors. The belief is that there are stocks that need to be bought and sold regardless of the state of markets. The focus on superior stock selection and long term investment horizon continues to be steadily followed as per the fund mandates thereby leaving negligible room for momentum based investing strategy.
Q. What would be your advice to investors with medium to long term investment horizon?
Answer: Reasonable relative equity valuations for the Indian market put together with positive long term growth drivers offer a decent risk-reward trade off for the Indian equity. Investor should choose the asset allocation basis his/her risk appetite. For a first time investor into equity funds, we recommend opting for large cap funds. For seasoned investors we recommend a more balanced approach and avoid excess concentration in mid and small segment. Exposure to diversified funds offer large cap exposure and selective stocks in mid and small cap segments, thereby bringing the best of both segments to the investor. With core exposure to large cap and prudent risk-taking in mid/small cap space an investor may be well positioned to capture the medium to long term opportunity presented by the market. Further, the investments can be staggered to benefit from the intermittent volatility in equity markets.