In conversation with Sailesh Raj Bhan, Deputy CIO, Equity Investments, Nippon India Mutual Fund

Given the current domestic and global scenarios, Sailesh Raj Bhan, Deputy CIO (Equity Investments), Nippon India Mutual Fund has some words of advice for investor

What is your outlook on the Indian equity markets in the short to medium term?

The Indian economy appears to be well-placed for reasonable growth supported by demand normalisation and manufacturing revival. Policy reforms of the past few years, huge under-investments in capex, stronger corporate balance-sheets alongside a transition to a multipolar world can aid manufacturing, exports and capex, thus potentially creating a virtuous cycle of growth. However, the near-term market sentiment could be potentially impacted by headwinds like global slowdown, especially in Europe, US and China along with higher interest rates, higher energy costs, etc.  After the recent sharp rally in equities, the market has rerated and will track pace of earnings recovery as multiple rerating has already happened.

The Nippon India Multi-Cap Fund recently completed 17 years with a 16.42 per cent compounded annual return since inception. Can you shed some light on the fund’s opportunistic investment style that has consistently outperformed the broader markets?    

The Nippon Multi-Cap Fund follows the investment philosophy of buying good quality businesses which have growth at reasonable valuations. The framework is to avoid overpaying for growth unless justified by underlying cashflow growth. We avoid pure momentum bets where the current valuations largely reflect the estimated medium-term growth. More importantly, the portfolio is constructed from a medium-term perspective and the attempt is to benefit from any significant market distortions without comprising on the portfolio quality. High conviction investing, taking the right risk, not overpaying for growth and investing with a long-term view have been some of the key contributors to the fund’s performance over the long run.   

What changes have you made in your equity funds in view of the rising interest rates and volatility over the last few months? Also, are you currently more skewed towards growth or value stocks in the Nippon India Multi-Cap Fund?     

The Nippon India Multi-Cap Fund follows the philosophy of growth at reasonable value with a focus on identifying quality businesses with strong growth visibility. The attempt is to take the right risk without compromising on quality and invest early in the cycle to benefit meaningfully from the turnaround or revival. In our view, it’s extremely difficult to gauge very near-term or event-based market reactions and hence we continue to construct portfolios with a medium-term timeframe in mind. Risk is managed through adequate diversification and preference for quality businesses at reasonable valuations with improving business outlook over highly valued companies given the rising rate environment. The portfolio has an optimal mix of established businesses, potentially faster growing emerging leaders along with a blend of cyclical and secular themes providing an appropriate balance.   

In your view, what are the pertinent risks facing equity markets in H2FY23?

Given the dependence on oil imports, crude oil price is a key risk to be monitored. Rising trade deficit of USD ~28 million which has more than doubled over the last 12 months is another challenge. Sharper than anticipated slowdown, especially a hard landing in the developed world, can impact global trade and the risk appetite of investors. However, in our experience, risk and opportunities usually go hand in hand and proper asset allocation and disciplined medium-term investing can go a long way in improving the investor experience across market phases.   

Which three major emerging investment trends do you expect to dominate over the next decade?     

Long-term opportunities continue to emerge across many sectors given India’s low penetration on a per capita basis and the continuous reforms which are being executed. Manufacturing and capex recovery, logistics, domestic pharmaceuticals and hotel and travel sectors are important long-term growth themes.     

How should retail investors navigate the current market volatility with mutual funds?    

Volatility is a friend of a prepared investor. While the market can remain volatile in the short run given the global shifts, the fundamental strength and demographic benefits of the domestic economy can play out over the medium to long term. Accordingly, retail investors can consider participating in equity-oriented funds through staggered investments through SIPs or STPs. Given our view that broader markets can do well with the present fundamentals, long-term investors can consider diversified strategies like multi-cap or flexi-cap offerings for pure equity investments.