"On the whole we are positive on the economy..." - Views on News from Equitymaster

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"On the whole we are positive on the economy..."

Jul 28, 2000

For a long time Rajat Jain (BE - Mech., PGDM - IIM Lucknow) honed his investment management skills at SBI Mutual Fund, where he was the Chief Investment Officer (CIO). Before that he handled several functions ranging from fund management to research to dealing in equities.

Currently he is the CIO at IDBI-PRINCIPAL Asset Management Company and will spearhead the company's new launches.

In a brief tte--tte with personalfn.com, he aired his views on the Indian economy and the mood in the markets. He spoke at length about his investment perspective vis--vis FMCG, pharma and oil PSUs.

PFN: What is your view on the markets and the economy?

Mr. Jain: In the last year we saw about 16 polarisations towards the TMT (technology, media, telecom) sectors. This was not good for the market. It was obviously not sustainable and we saw some of that growth being undone.

As far as the economy is concerned, there are some mixed signals. We have seen commercial sales fluctuating, bank credit going up, but on the whole we are positive on the economy. I think post-liberalisation we have developed a broad-based economy, which is a good sign and the markets will reflect that.

PFN: How do you see the markets going forward now?

Mr. Jain: We are not short term players and do not time the market, which is why we never have a short term view on the market. However, we can't ignore the fact that the government continues to be liberalized and the economy is improving. We believe an investor can make 20-30% comfortably in the market over a year.

PFN: There is lot of talk and anticipation about disinvestments of PSU oil majors. Do you see value in these stocks? Are you satisfied with the way the government has handled the disinvestments process?

Mr. Jain: Certainly, good companies have value no matter where they come from. That includes PSU oil majors. By itself there is nothing wrong in the government controlling them, except for the fact that the administrative machinery is very slow. Oil PSUs, BHEL, these are good companies and the markets will accept them. The disinvestments talks have been underway for quite some time now. Obviously we cannot debate endlessly and there has to be some conclusion to the process.

PFN: Do you see a lot of value in oil PSU stocks? For instance our internal research tells us that these stocks are trading at 2-3 times their FY02-03 earnings. So they seem undervalued?

Mr. Jain: Refining is a low margin business, unlike marketing which is far more lucrative. Oil PSUs have extensive reach, a wide asset base and they have been in the business for a very long time. These PSUs can exploit their expertise, assets and reach to their benefit. This certainly makes them more attractive.

PFN: There is widespread belief that the fast moving consumer goods (FMCG) and pharma sectors are witnessing a slow-down. Can you elaborate on these two sectors?

Mr. Jain: As far as FMCG is concerned, we are witnessing 6-7% volume growth. Add to this 6-7% inflation, and we have a 14% price growth, which is quite reasonable. These stocks have faced a perception problem vis--vis TMT stocks. The markets have tended to ignore these stocks in favour of the more aggressive TMT stocks, which have given over 100% returns in the past. I think investors must realise that it is not possible to get those kind of returns all the time, and FMCG stocks can also be rewarding.

Like FMCG, the Pharma industry is also good. And again it has been overshadowed by TMT just like FMCG. There seems to be nothing wrong with pharma companies as we have seen companies develop molecules and invest in research and development.

PFN: Coming more specifically to IDBI Mutual Fund, how do you stand currently in terms of net assets, performance?

Mr. Jain: As on March 31, 2000 IDBI-PRINCIPAL's net assets aggregated Rs 8,200 million. Over the year, IDBI-PRINCIPAL INIT '95 has given returns in excess of 40%. We were not as aggressive as the other funds and did not take high exposure to TMT, as we are not market-timers. We always believed that this growth was not sustainable.

PFN: As regards IDBI's tie-up with principal, how do you see IDBI MF benefiting from this venture?

Mr. Jain: IDBI MF stands for trust, confidence and investor servicing. Principal brings to the tie-up technology and new products. Although principal is a big player in pension products in the USA, right now we will be focusing on mutual funds products.

PFN: Have you been able to tap IDBI Bank's network in a big way for your marketing initiatives?

Mr. Jain: Yes we have. We have enjoyed a very good relationship with IDBI Bank. IDBI Flexibond is a well-known brand and we have leveraged that. There are synergies for both IDBI MF and IDBI Bank in this relationship.

PFN: Have you seen interest in the semi-urban areas for IDBI-PRINCIPAL's products?

Mr. Jain: Yes we have seen considerable interest for our products even in semi-urban areas. And IDBI MF and IDBI Bank have a large enough network to cater to distant parts of the country.

PFN: What are your plans regarding fresh products?

Mr. Jain: In the month of August, we are set to launch 4 new products - a growth fund, an income fund, a balanced fund and a cash management fund.

PFN: What is your advice to the mutual fund investor?

Mr. Jain: The mutual fund investor must be aware of the fund's philosophy and objective. A lot of investors have come to grief from the heavy exposure of some funds to TMT stocks. Investors must define their own objective very clearly. For instance if they are saving for a daughter's wedding or a child's education they must invest in a fund that gives steady and consistent returns. So that segmentation must be there. There should not be any mismatch in the objectives of the investor and the fund.

PFN: Who are the persons who have had a major influence on your life?

Mr. Jain: My father has had a major influence on me. Another person from whom I learnt a lot was my teacher who taught me to struggle against all odds.

PFN: Do you read a lot?

Mr. Jain: I like to read about Indian history. Currently I am reading a book on the Internet.

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