Mr. Srinivas Rao Ravuri
Mr. Srinivas Rao Ravuri has been Senior Fund Manager of Equities at HDFC Asset Management Company Ltd. since October 2004. Previously, Mr. Ravuri served as a Senior Analyst at Motilal Oswal Securities Ltd., from July 2003 to September 2004. Prior to that, from December 1996 to July 2003, he served as the Assistant Vice President of Equity Research at Edelweiss Capital Ltd. Previously, Mr. Ravuri served as an Investment Analyst at Securities Capital Investments (I) Ltd., from November 1994 to November 1996. He has an extensive experience in equity research and fund management. Mr. Ravuri received an M.B.A. and a B.Com degree in Finance.
1. The markets have been trading at peaks for some time now. What is your take on the valuations front and what is the justification behind such levels?
Equity markets have lagged nominal GDP growth for several years now. Profit growth is now improving and earnings growth for next 2-3 years is expected to be strong (Bloomberg consensus NIFTY EPS growth – 16% in FY18 and 20% in FY19). NIFTY is currently trading at ~16.7xFY19E EPS which is reasonable in a low interest rate and strong earnings growth environment. In our opinion therefore, there is merit in increasing allocation to equities (for those with a medium to long term view) and to stay invested.
2. GST is just round the corner and recently the rates were also disclosed. How do you read the situation presently and the short term impact of the change in markets?
During the month, GST Council finalized the tax rate for most of the goods and services. According to government estimates, recently finalized GST rates should lower inflation by 2% after their implementation. Over time, GST should increase tax compliance leading to moderation in tax rate and at the same time ease of doing business should also improve.
Given the nature of reform and size of the country, there could be short term challenges. However, from a medium to long term perspective, it will be a huge positive. Also, the market is focussing on the medium to long term positive impact.
3. There has been an increase in fund flow to markets via mutual funds in recent times. How will this increased participation benefit the market health going forward?
Equity mutual funds (MFs) have received healthy flows since May 2014.In recent months, inflows from systematic investment plans (SIPs) alone have amounted to sizeable number per month. Despite heavy selling by foreign institutional investors since the demonetisation announcement, Indian markets have done well, largely because of large purchases by domestic institutions.
Investment in mutual funds as percentage of total financial savings is quite low in the country. We expect MFs to grow at a faster pace as compared to other financial assets in the long run. This will lead to healthy balancing in the market between domestic and FII flows.
4. What segments and sectors of the market do you believe still offers the most opportunity and why?
Interestingly, macroeconomic conditions in India have improved significantly in the last few years. Inflation has halved, the rupee is appreciating, the current-account deficit is negligible, the foreign direct investment has doubled and metal prices have stabilised at reasonable levels. This is likely to support faster profit growth in sectors that were laggards in the last cycle – capital goods, corporate banks, metals. It will slow growth in sectors with relatively higher valuations like FMCG and pharma that were leaders in the last cycle. This once again has created a conducive environment for a new cycle in markets in our opinion.
5. What is your investment strategy at present and how are you investing the new funds?
Our flagship funds have successfully navigated each of the last three market cycles between 1995 – 2016 and have substantially outperformed the benchmark indices. This was possible as the funds invested in the next cycle ahead of markets. This time around as well, we read the changing environment early and the portfolios are aligned according to the changing market environment. In our opinion, the investment opportunities are abundant in the equity markets and we see no issues in allocating the new flows received by us.
6. From a retail investor's perspective, what should be his investment strategy at this moment?
The prospects of Indian economy are very promising. Equity markets have lagged behind economic growth for several years now. Equities have a good compounding potential in such an environment. To effectively benefit from India’s growth is simple, investors should estimate their risk capital (that part of wealth which can be spared for five years or more and on which volatility can be tolerated). This portion of wealth should be invested in three–five carefully chosen funds that have a track record of outperforming markets over several cycles.
The views expressed are author’s own views and not necessarily those of HDFC Asset Management Company Limited (HDFC AMC). The views expressed are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future. Neither HDFC Asset Management Company Limited and HDFC Mutual Fund (the Fund) nor any person connected with them, accepts any liability arising from the use of this document. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any guaranteed returns on investments made in the scheme(s). The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.
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