Interview with Rohit Singhania, Co-Head (Equities) at DSP Mutual Fund

In this exclusive interview, Rohit Singhania, Co-Head (Equities) at DSP Mutual Fund, responds on the current state of the mutual fund market, the sectors and themes that are drawing attention and the reason why banking and financial services are slated to do well in the coming years.

How do you analyse the recent performance of the Indian equity market, and what key trends or patterns have you observed? What challenges or risks should investors be mindful of?

If you look at the last four quarters or so in terms of key market trends, we have seen decent moderation in top-line growth. But on the other side, EBITDA margins and EBITDA growth continued to remain strong. The main reason is that companies haven’t really passed on the benefit of lower raw material costs to their customers, and so despite having low volume growth, they are posting higher profitability. That’s one key trend we have seen in the last three or four quarters. Also, the trend of improving balance sheets and return on equity levels for companies post-pandemic has continued.

We are also seeing corporate capital expansion expenditure go up on a year-on-year basis. Overall, if you look at it on a bottom-up basis, we are seeing better profitability in the last three or four quarters along with improvement in balance sheets. In terms of how we analyse the recent performance of the Indian equity markets, I will put it into maybe two or three baskets: one being on the macro level. Indian macros have been resilient. When you look at investors’ numbers, the monthly GST collection, and political influence in terms of announcements or interference, I think it’s all been on the right track. That’s one of the reasons for the good equity performance.

The other basket is corporate profits. Though we haven’t seen any increase in top-line growth, the increase in profitability has restored the confidence of the investors. The next one is the sheer money flow into the equity markets, whether from domestic participants ranging from retail investors to institutions, or from global investors. During the calendar year 2022-2021, we were focusing on how far the retail investor would be willing to put money into the equity markets. I think that trend continued even in the last calendar year. You could ascribe various reasons to it, be it a lack of other opportunities or the kinds of returns that drove the markets.

On the global side, with China not doing anything and uncertainties in the developed markets, we have seen a lot of money come into India-dedicated funds, and this share has gone up even in the MSCI-dedicated funds. These are the three reasons I would probably attribute to the equity performance in India over the last 12 to 15 months or so. In terms of risk, as I mentioned, till now, low revenue growth has not bothered us in terms of going forward. But if the top line doesn’t grow for the corporates, we could see the emergence of some challenges.

These would pertain to higher growth profitability, which we have seen in the last few quarters. Secondly, in terms of more challenges, these could be from the global scenario in the form of ongoing conflicts such as the one between Russia and Ukraine and now the trouble brewing in the Middle East region. A lot will depend on how the global winds blow although when it comes to India, there are limited risks and worries. An investor who parks funds in global companies should certainly keep a lookout for how things shape up across various geographies.

Given the interconnected nature of the global financial markets, what strategies does DSP Mutual Fund employ to maintain market stability amid influences from the global economic landscape?
At DSP Mutual Fund, our focus is to have more overlay of a bottom-up approach in terms of stock selection and sectoral views. We also keep in mind what’s happening globally in the various sectors and the trends that are shaping up. For example, consider the IT sector in India. Most of the IT companies in India have significant exposure to the banking and financial services space globally. So, you need to have some sense or idea about how that space is doing across the world.

The reason is that it determines how the IT sector gets the orders or how the business grows over the next couple of years. We have also been hearing a lot about how the rates in the U.S. will move. They have the elections this year, sometime in the fourth quarter of the calendar year. Thus, it’s crucial to keep a tab on the movement of rates and its impact on global liquidity. While considering all this data, the core thesis has to remain focused on a bottom-up idea selection and portfolio construction.

How do you assess the growth trajectory and long-term potential of the banking, financial services and insurance (BFSI) sector in India, particularly in the context of the mutual fund industry?
Personally, I am very positive about the banking and financial services space. The economy needs to grow, businesses need to grow, and we need to get back. So, any backbone of growth should be strong, and that is the case with the banking and financial services space. I think we have a lot of big banks and smaller banks that can aid us in driving that overall growth for the next 10-20 years. Today, the banks are well-capitalised. Also, in terms of the balance sheet quality, I think they are very well-placed. So, when I look at this space, it gives me a feeling that over the next few years, this would be one of my favourite spaces to invest in.

Are there specific new opportunities that you see emerging in the Indian capital markets, and how is DSP Mutual Fund being positioned to leverage these opportunities?
We have always been very prudent whenever we launch new funds, whether it is in a diversified space or a thematic space. Last month itself, we launched the Banking and Financial Services Fund, which echoes my view of how we see the BFSI space over the next 5-10 years in India. That’s how we are trying to leverage the DSP Mutual Fund, where we can offer investors good products at the right time. Also, three and a half years back, we had repositioned our DSP India T.I.G.E.R Fund, which is an infrastructure fund. I feel there is a good opportunity in the multi-cap space.

As regards passive and exchange traded funds (ETFs), we have products in the form of Equal Nifty 50, Nifty Small-Cap 250, Quality Small-Cap, etc. We try to give investors products which are slightly differentiated and not run-of-the-mill, and at the right time. In terms of new opportunities, there is a buzz around renewable energy that includes wind, solar, and even hydro to some extent, with the government encouraging the entry of several companies both in the private and public sectors. Meanwhile, an interesting development is that coal has come back over the past 12 months. Now, even the Europeans are talking about thermal power additions because the availability of gas is a question mark. This theme will do well because every country needs power capacity additions.

With the rise of fintech and other technological advancements, how do you envision the mutual fund industry evolving, and what role do you see for technology in reshaping the sector?
We have seen technology aiding investment decisions and machine learning. We at DSP Mutual Fund have been working on similar lines for the last 18 months or so. Better technological capabilities will help us make better decisions. The final decisions will always be made by humans but the implementation of those decisions becomes swifter and more efficient when you have technology at your disposal.

What would be your advice for an investor who wants to park Rs 1 lakh in any mutual fund? Can you highlight any specific themes that you believe will be the key drivers?
I would advise any equity investor to have at least a three to five-year horizon in terms of equity investments. The reason is that over the past two to three years, it has almost been a one-way street. No one has experienced a drawdown for the last few months or so. An investor must have a slightly long-term view in terms of timelines. As far as the themes are concerned, as I have said earlier, the banking and financial space looks like a sunshine category. Beyond that, investing in funds which have a good mix of Large-Caps and Mid-Caps will do well.