Morningstar Investment Conference – Day 2

Wednesday, October 26th, 2016

This years Morningstar Investment Conference covered a range of topics from some great speakers. The second day had a great panel on the current equity markets.  We have summarised some of these views in our post.

 

Disclaimer: The content below is for informational use only and should not be construed as investment advice. The views presented are of the speakers themselves and are not an endorsement by us.

 

Equity Panel Discussion

Anoop Bhaskar (Head- Equity, IDFC AMC), Prashant Jain (ED & CIO, HDFC Mutual Fund) and S. Naren (ED & CIO, ICICI Prudential AMC)

 

This panel brought together some prominent equity fund managers to share their views on the market in light of the global slowdown, high valuations and still sluggish Indian growth.

 

On the macro scenario over the last few years:

S Naren talked about how debt, deflation and demographics are the main problems around the globe. India has benefitted favourably from these trends. While deflation is behind us and metal prices are up, it still seems that the Indian opportunity is much greater than the global one.

Anoop Bhaskar talked about the slowdown in real estate and questioned whether this was a structural change in the market. Investors still favour real estate because it is the one asset class that can be leveraged and takes up a large part of an investors cash flow.

Prashant Jain talked about how India has been experiencing low inflation, low interest rates and a low current account deficit and how this stability is good for the economy.

 

On valuations and sectors of opportunity

Prashant Jain also said that markets move in cycles and that currently the market is in transition. It is moving away from consumer and pharma companies to industrial capex and corporate banks. Margins in these new sectors are at a two decade low and will likely bounce back in the future.

S Naren talked about a funny concept: He said that every fund manager today says that, in general, mid caps are overvalued. However when it comes to the fund managers own portfolio, everything seems to be fine. He mentioned that there are sectoral reasons why the large cap index has underperformed in the last few years. In terms of sectors, he mentioned that the “mobile” space is where the current opportunities lie.

Anoop Bhaskar talked about how quality and growth has become quite a crowded trade. In terms of valuations, he mentioned that low earnings growth and a low cost of capital globally could justify even higher PE levels from the current scenario.

 

On risks in the market

S Naren mentioned that if the current global situation changes dramatically it will have a negative impact on India. But he thought that this was unlikely and that increasingly our markets would get bigger domestic rather than foreign flows as Indians begin shifting toward financial assets.

Prashant Jain, always the bull, said that he did not see too many risks in the market and that profit growth would likely accelerate in the next few years. He mentioned that patience would be the key to good returns.

Anoop Bhaskar mentioned that high nominal growth normally translates into high earnings growth. A growth of 7.5 per cent is not a slowdown, but the problem is that we planned for 14-15 per cent nominal growth and that is whats causing problems. He mentioned that until these problems are resolved, we are likely to see more sluggish growth.

 


About the author

Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.

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