Mr. Manish Gunwani
CIO - Equity Investments at Reliance Mutual Fund.
Manish graduated from IIT Chennai with a B.Tech and has a Post Graduate Diploma in Management from IIM Bangalore. Manish has 21 years of work experience primarily in equities spanning roles in equity research and fund management. He has also co-founded a technology company in the document management space.
During his stint at ICICI Prudential AMC, he managed two flagship funds of the mutual fund whose assets grew from $1bn to $5bn in 5 years. One of the funds grew from $50m to $3bn becoming the second largest fund in the industry. As deputy CIO he was instrumental in various aspects of asset management including setting up research processes, product strategy, developing talent of the team etc.
Manish has immense experience in equity research and has also spent two years working in a portfolio management company whose focus was midcaps. Having traveled extensively across the world, Manish has attended many global investment conferences and seminars.
Q: The FY18 Q2 saw improvement in economic conditions. Do you feel the economic slowdown has bottomed-out and from here onwards, the positive impact of reforms has now started to show up?
Answer: With two important policy actions of GST & Demonetization behind us and the global growth back we expect the growth to recovery meaningfully. We continue to have supportive macros like lower oil prices, lower interest rates, lower inflation and fiscal stability. This coupled with strong reform momentum with historic measures like GST, Bank Recapitalization, Make in India, Direct Benefit Transfer etc. have created a strong platform for long term sustainable growth in India. We believe India is likely to witness a structural growth trajectory for the next 8-10 years.
Q: The earnings numbers were out recently. What has been your reading from those numbers? Is the earnings growth now visible on ground and do the numbers justify the valuation premium existing in markets?
Answer: The first part of results season for the 2nd quarter has met expectations, supported by early onset of the festive season in India. Over the last two financial years the Index Earnings were compressed due to sectors like Banking & Metals which had witnessed much lower growth. This lower base of earnings should also facilitate an uptick going forward. Stabilization in export growth will also be another supportive factor to drive earnings in the next 12-18 months. We expect to see a double-digit growth in earnings for FY18 and FY19.
Thus while the current valuations are definitely not cheap, we should also consider that after a gap of 5-6 years big geographies like US, Japan, China, Europe are witnessing a growth rebound. This is very important for markets because not only does a significant part of market earnings benefit from global facing sectors but also typically India’s correlation to global GDP growth is very high. Hence the chances of domestic recovery are high if the global growth continues to remain good.
Q: The government recently announced the bold decision to recapitalise public sector banks which has been warmly welcomed by all. Please share your views on how this can impact the economy and give boost to lending?
Answer: Banking Recapitalization is an important initiative to support capital starved public sector banks which required additional capital. The overall size of recapitalisation at Rs. 2.11 trillion is substantial and will boost capital adequacy, even after making adequate NPA provisions. It will help accelerate credit growth (especially to MSMEs and priority sectors) and thereby economic growth over the medium term. The recap programme will not only make adequate provision for current NPAs in PSU banks’ books, but also give capital boost for further lending. This will help in PSU banks for raising capital in future.
Q: This government has put forth very ambitious plans in infrastructure sector, especially roads and railways. To what extend do you feel such infra spending can help in job creation and boosting economic growth?
Answer: Road and Railway Capex are usually labour intensive as proportion of construction is high and hence it will create more jobs. However, we will have to be mindful that historically execution challenges have been higher in this space and hence it may not be a short-term stimulus & may take time to play out.
Q: What sectors and market segments, in terms of capitalisation, you believe carries good investment opportunities? Is infrastructure something that you are keenly exploring?
Answer: We believe it’s important to have stock specific investment approach. Given the strong outperformance of the Mid & Small cap space over the last 3 years, there appears to be a relative opportunity in the Large cap companies. However, some of these large caps have structural issues given the disruptive nature of technological changes, while some have lower penetration. Hence it is difficult to take an investment call just on market capitalization even though on a valuation basis large caps appear better placed.
In the backdrop of improving global growth and expected domestic recovery we believe reversion to mean i.e. themes which were impacted due to macro growth like Corporate Lenders, Capital Goods, Logistics, Pharma can be interesting opportunities.
Q: As a fund manager what is your take on the current market conditions and the direction the markets may move in say few years from now? What would be your advice to investors sitting on portfolio with significant gains?
Answer: We believe India is in a structural growth phase supported by lower inflation, falling interest rates, lower oil prices and policy actions like GST, banking sector reforms, UDAY etc. Given this platform we believe India’s economy can potentially double from the current USD 2 trillion, over the next 6 – 8 years. Also, earnings growth which is yet to unfold, can be an important trigger for the markets, going forward. Thus, we remain positive on equity growth prospects over the next 3 – 5 years.
Asset allocation is most important aspect for sustainable wealth creation over the long run. Hence investors should regularly realign portfolios in line with their Investment Goals & Risk Profile. Accordingly, investors significantly overweight on equities can consider reallocation to other asset classes while maintaining an optimal equity allocation as per their risk appetite.
Common Source: Bloomberg, RMF Internal Research
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