The Top-Down Call On US Economy & Markets, D-Street Outlook & Top Investment Strategies | CNBC TV18

Harish Krishnan is with us coci head of equity at adya B sunlife asset management company Harish good morning good to have you here thank you for your time uh you know I want to just understand uh what you guys are doing at Bera in terms of allocations activity and I want to pref facee that with something that you tweeted recently uh you sort of you quoted data from a report from ICS Securities and you said that uh the number of companies in the top 500 where earnings yield is greater than bond yield uh is now about 47 the lowest reading was 32 in December of 2017 this is you know top 500 Universe where earnings yield is greater than bond yield uh so just sort of prefacing my question with that data which you yourself put out uh go on Harish morning Prashant um so what we I've seen over the course of the last 18 months or so has been that risk has got disproportionately rewarded uh especially as we go down the curve be in terms of mid small and more so in micro caps and you know lesser set the better uh now in this context what what we are kind of doing in our portfolios is basically moving up the curve um we trying to consolidate our Holdings um we have increased our allocation to large and larger midcaps uh you know trying to book up profits into many sectors which have done exceedingly well uh We've also seen over the course of the last 6 seven months or year to date um actually quality as a style uh doing significantly better and this was our call at the start of the year uh that you know value had done exceedingly well over the course of the last 2 three years uh we did think that growth and quality would start making a comeback and we've seen quality starting to make a comeback out there uh sectors like say Pharma where we have a large position it uh again a sector where we have an overweight uh to a certain extent on the consumer or the consumption side these have all been names that have kind of helped us U uh you know kind of position for this kind of a uh a change uh I would say in terms of sectoral uh CH uh which is happening so by a large the the uh sense that we get is that one needs to uh be mindful of taking on more risk at the point of time uh doesn't mean that you know we going to see a massive crash Etc but we do think that there can be a reasonable amount of churn uh in terms of performance going ahead and uh that is what we kind of moving and navigating within our portfolios so what's the kind of sorry Harish hi morning so what's the top- down call now first on the US economy and on the markets there because investors are still grappling with the uncertainty of US Health then there is UN certainty related to the elections uh you know us markets are virtually at all-time highs barring the little bit of a correction that we had last week and historically this has been a challenging year so what's the call First in the global markets Us in particular and then the flow through to India uh so from a US perspective we do think that the corporate health of us is in very good shape the consumer health of us is also in very good shape so clearly while there is a interest rate which has climbed up significantly and there is an anticipation of a Slowdown and our rates are likely to be headed lower uh we think that this is possibly the most well anticipated recession or slowdown in the making uh Market observers and people and cxos have been waiting and watching for this over the course of the almost the last 18 months uh so therefore when it does happen we don't think there's going to be a panic yes uh uh in the near term there could be some amount of consolidation some amount of uh you know steam which is going off uh but uh we don't think that you know this is a precursor of a massive fall or a massive correction uh in in the US um and that that kind of flows through across most other uh risk assets as well uh wherein we think that especially Emerging Markets which have not really performed baring India uh could uh could be a good place to be in uh as in when the rate gets do get through over the course of the next 12 18 months coming through from an India point of view I think you know while we are going to see you know continued strength in the economy I think at the margin and markets do work at the margin rather than in absolute terms uh we do think that there is some amount of softness so if you look at Topline growth of corporate India there has been reasonable amount of sluggishness uh and while there has been a significant margin expansion that helped through earnings over the of the last 18 months I think Topline growth needs to be a lot lot more focused upon going ahead given the fact that you know there is only so much margins that can go up uh so in that context we do think that you know it makes sense to be uh in fewer Pockets where there can be a potential Improvement in Topline growth uh there can also be a fewer sectors where there can be a potential of uh significant margin expansion so if I were to think about sectors where there is uh and which haven't performed well over the course of the last 3 4 years uh you know sectors like say for example cement um which has been a space which hasn't had a great threeyear run uh we are seeing consolidation uh also we do think that cement is a proxy play on Energy prices uh because uh at every uh uh at every aspect of the value chain it's essentially transporting energy and lower energy prices therefore can help with improving margin so I think that could be a space that we have a contran kind of a St uh similarly consumer durables is a space you know which hasn't done much over the course of The Last 5 Years of course this calendar year it has kind of got its uh act right but we think that there is still a lot more room to play out as far as consumer durables as concerned so I think there are Pockets uh you know where where we do incrementally allocate uh but um you know a broad brush kind of a move is not something that we anticipated especially in the near term even as we continue to remain positive on the broader stance and equities from a medium to longterm point of view all right we'll ask you to hold on to your thoughts Harish we also have vetri suban man of many cycles Chief investment officer UTI Asset Management joining us now and as we speak you know on Q the markets extended its cuts the Nifty is down by about 100 points close to around 24750 SBI is one of the stocks which is lower right now the midcap index when it started was down 610 of % now down about a% as well with a cut of almost 600 points what are the stocks which are leading the declines it's the same ones which led open lower are now extending their Cuts so granules for instance now down about 4% as well good time to welcome uh you vetri you know where do you stand at where the market is right now what are your thoughts and uh what are the investment ideas sure thanks well not much has changed it's still reasonably richly valued market and therefore one really has to you know dig quite deep to be able to identify where there is value um and you know I think what our messaging to investors has been uh that this is actually a time where one should be more concerned about risk uh this is a time where one should be more concerned about asset allocation uh stick to the asset allocation in line with your uh you know goals uh this is not a time to dial up risk if your neighbor is making more money than you are so be it you should be aligned with you know where you think your asset allocation is tolerable relative to your medium-term outcomes uh when you think about valuations in the current Marketplace uh you know i' particularly point to the small and midcap space where you know valuations are not only very rich in absolute terms uh this is one of the few times in my career where small cap valuations have actually moved to a premium uh to uh large cap valuations and that uh I think is very unusual and also a sign of of perhaps a need to be slightly more risk ofs in that territory in particular uh V high morning uh sort of retail inflows are still gushing through uh this month as well as as fast uh what we don't get daily data but I don't think there's too much of a change simply because keep in mind that uh essentially the pipeline that's coming through sip is intact uh but keep in mind Prashant and I think I've seen you all talk about this as well there's a gush of Supply coming through at the other side as well so as a capital Market participant I'm happy that Capital formation is well and truly underway but I don't think this is a one-dimensional uh you know perspective that we should be keeping there is a massive supply of flow which is coming through from promoters from new issuances uh as well as from you know strategic holders including PS and VCS so U you know every day you're flooded with a new set of uh either block offers happening in uh uh the marketplace or qips or offs or IPOs so it's a very hectic market and you know that's the reality of it you know I was talking to a banker over the weekend uh and he said well everybody wants to do an IPO uh and that is maybe not such an exaggeration he was joking well you know it not be very far away when people securitize their own personal earnings and IP themselves I just uh joking but uh wa uh so but you know the paper which is coming again very difficult to generalize is there a bit of euphoric element in how the how these issues are priced as well or they are reasonably priced uh a lot of a lot of what is coming and you must be seeing most deals we do but you know we've been selective we've been selective for a long time now uh and I think it pays to be selective in these kind of environments so you know we typically don't participate unless we are clear that this is something we are willing to hold for the medium to long term I think many people have seen the data about how much flipping is going on in the IPO Market that's certainly not something uh that we do from the fund perspective so you know we only participate if we are clear that we are willing to add to our positions at some point and stay invested for the long term uh so you know I but I don't want to generalize because I think you've just got to treat uh each IPO on its merits rather than generalize it Harish have you all been participating in any of the IPOs course we've been part ipating but I guess we've been selective as well so roughly about 1 and five IPOs over the course of the last 3 months is where we've generally kind of uh you know put in our monies uh so um I think you know as vetri said it's great to formation uh through the equity markets um and U we do think that many of these IPOs need to be evaluated uh so that you know we are ready uh as in when we get Creer Comfort on valuation and more importantly like I said it's more an assessment of the risk that we see at this point of time wherein we want to consolidate into our Holdings rather than adding to the tail so that really is the focus at this point of time um because you know rather than having a fringe holding wherein we may get say 10 15 20 crores uh we would rather want to uh consolidate at the top where we can take meaningful bites of say 1,000 2,000 3,000 crores uh and there are many listed companies which have uh which have not kind of been in the uh in the Limelight over the course of the last 3 five years which do provide greater margin of safety for us uh wherein we are moving our our overall portfolios towards all right vetri you know you did and both of you all actually to be very honest did uh stress a lot on asset allocation at current point in time as we speak in fact the Nifty bank's taken cues and has recovered from the lows moved mildly into the green but on asset allocation itself you said you would be happy to underperform in the very near term so long as you have all your uh you know portfolio Investments Etc secured over the medium to long term for a moderate risk capacity individual what should the asset allocation be according to you vetri and uh in the asset in the allocation towards equity in that what according to you would be your sectoral breakdown sure um honestly that's a very difficult one to answer because I think every person's risk appetite and you know financial goals are different but what I can talk to is essentially the kind of asset allocation uh you know which we manage in the schemes where we take responsibility for asset allocation uh so if you look at our multi- asset allocation fund uh you know our net Equity exposure can come down to a minimum of 20 it can go up to a maximum of 80% currently we are less than at the halfway mark at about 45% uh so in a way it is an underweight Equity stance in the context of asset location that we make in that scheme and that's a function of valuation so I wouldn't presume that this is the right number for everybody uh but really the point that I would make and I keep getting asked this question when will the market correct will it correct print over time will it correct in a sharp cut and the answer to that is that we really don't know but there is a way for every prudent investor to prepare uh you know himself or herself for those kind of outcomes by sticking to your asset allocation rather than trying to predict when the market will cor and how it will correct neither of which I have seen anybody do consistently and accurately over 30 years now in the marketplace so you know use the tools available to you rather than focus on something which is impossible to do uh in terms of sectors which are attractive honestly there's only one sector top down uh that we find reasonably attractive at this point of time it's a combination of above average fundamentals with below average valuations and that roughly speaking is the Banking and Financial Services sector so though that's the one sector where you know I have Absolute Comfort you know again only half joking I've been mls in asset allocation usually when asset gold and equity and debt Etc right right now asset allocation means uh in equities large cap micro midcaps not to lose sight of a lot of people who are sitting on the sidelines you know why the unlisted space as well I tell you I was at a event a month maybe it's been a month now but there was a fixed income CIO there was a equity CIO the fixed income CIO was more bullish on Equity than uh the I would name names here but uh that's the kind of Market we are in uh VRI those that you know the old saying right this time it's different uh you you sometimes do feel that and that's the beauty of markets they uh you know the the rise can make you believe the rise the fall can make you believe anything you know uh and and you you you start to have to you really have to pinch yourself to say well you know this has happened before uh but what's your sense I mean I'm not saying I'm not saying well if if it's I'm not the question is not whether this time is different but do you think there are things maybe a little different maybe a little more supportive of uh the underlying uh sort of exuberance that we are seeing uh and I'm I'm sure you would agree with some right and and disagree with others just briefly if you can share your thoughts um yeah sure pran look you know um it always is the case that when valuations are rich you've got news flow which is extremely supportive and when valuations are uh you know at the cheaper end the news flow is rarely supportive right so this is the reality uh that we deal with in the marketplace could things be different this time around maybe they could be but you know I've learned the hard way that uh Rich valuations tend to sort of eat into forward returns whereas cheap valuations tend to add to forward returns uh so I'm not suggesting anybody go 100% into fixed income or whatever other asset class they deem to be attractive relative to Rich equities all I'm saying is stay the course this is not the point of time where you want to look at what others are doing now I hear things like this is India's decade this is India's Century you know as an Indian I'd be delighted to see that happen but as an investor the lesson that I've learned over time is that Prudence and risk management is the only way to stay in this game for the long term being invested for the long term is as important as what happens and what people forget is that if you overextend yourself if you leverage if you overextend yourself you compromise your ability to stay invested for a very long time and the most important part of the compounding equation is not how fast you go it is the period of time that you are able to remain invested great conversation thank you uh Harish and vetri for your insights in the markets and the way ahead