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  • : "Investors are better off adopting a bottom-up approach…"
  • --> OUTLOOK ARENA  >>   FACE TO FACE >>  JULY 12, 2004

    "Investors are better off adopting a bottom-up approach…"

    With a BE in Industrial Engg. and a PGDBM in IIM (B), Mr. R. Sukumar was the Head of Research (1990-94) in the Indian Opportunities Fund jointly managed by Martin Currie and Indbank before shifting to Pioneer ITI Mutual Fund, which was subsequently bought over by the Franklin Templeton Investments.

    Mr. R. Sukumar is the Senior Vice President and Chief Investment Officer (Franklin Equity) and will be based out of Chennai.

    Pfn: What are your views on the budget?

    Mr. Sukumar : The reiteration of the reform process and the hike in FDI limits in various sectors, especially the insurance & telecom sectors have been viewed positively. The abolishment of the long term capital gains tax and reduction in short term capital gains tax is a positive for the markets. However, the exact implications of the transaction tax are not clear as yet. We believe that it has been a balanced budget given the political compulsions that the finance minister had to deal with and as always implementation of the various proposals needs to be closely watched. One cause for concern could be the optimistic projections of revenue receipts, which will become clearer in the coming quarters.

    Overall, the impact of the budget is expected to be neutral. Given that in recent years major policy announcements have been made outside the budget and we will have to wait and see if the same pattern is repeated.

    Pfn: Specify one strong positive and negative aspect of the budget.

    Mr. Sukumar : The reiteration of the reform process along with focus on fiscal consolidation is a positive. However, we would have liked to see more measures to provide an impetus to the manufacturing sector.

    Pfn: Identify one thing that you would have liked to see in the budget.

    Mr. Sukumar : We believe that in order to really alleviate poverty, one needs to spend more on infrastructure and not encourage subsidies. The shift of resources from subsidies to infrastructure is missing in the budget. We have seen that historically subsidies haven’t helped in eliminating or reducing poverty and China has done well on a relative basis by concentrating on the infrastructure sector.

    Pfn: What is your outlook on equity markets both from the short term and long term perspective?

    Mr. Sukumar : Given the strong economic and corporate fundamentals, the markets look under valued at current levels. While the long term prospects remains strong, barring any new drastic policy changes by the new government, investors need to be aware that there could be a shift in asset allocation away from emerging markets among global fund managers if global interest rates rise faster-than-expected. The bottomline is that investors should be ready for a range bound market over the short term despite the attractive valuations, but the long-term story continues to be attractive for reasons aforementioned.

    Pfn: How do you think the FIIs will react to tax-related issues like the revised capital gains structure, 0.15% turnover tax?

    Mr. Sukumar : From a global fund manager’s perspective, the various budget announcements and the absence of policy reversals might have at least put rest to fears about the policy direction due to the change in the government. We believe that the new capital gains structure would be viewed positively and don’t think that the turnover tax will have any significant impact for fund managers with a long term perspective on Indian markets.

    Pfn: Which sectors look attractive to you right now?

    Mr. Sukumar : India has been traditionally a stock pickers market, but the strong macro story in 2003 led to a prevalence of a top-down approach. Given the current market conditions, investors are better off adopting a bottom-up approach and invest in companies with good fundamentals across sectors. We believe that there are opportunities across sectors and with consolidation expected across companies in most sectors, picking up the right stocks will be more important rather than identifying sectors

    Pfn: What should be the strategy for the retail investor going forward?

    Mr. Sukumar : A frank answer is, “It depends on the individual”. The reason is that no single advice can be right for everyone and the answer to the question depends on the unique situation of each investor. At current levels we believe that investors who are underweight in equities can consider increasing their allocation and they could also look to diversify their fixed income portfolio by increasing exposure to short term fixed income, liquid and floating rate funds.

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