Regardless of the economic cycle we can always find stocks which have good wealth creation potential

BFSI Industry Interview
On: Aug 25, 2019 | Duration: 1.00 hrs | From: Advisorkhoj Team
BFSI Industry Interview in Advisorkhoj - Regardless of the economic cycle we can always find stocks which have good wealth creation potential

Mr. Sunil Subramaniam – Managing Director

Sunil Subramaniam joined Sundaram Mutual in September 2005. During his tenure he has handled various roles – Vice President (Retail Distribution), Executive Director (Sales and Marketing), Director (Sales and Global Operations), Deputy CEO and CEO before being elevated to his current role as Managing Director. Sunil is also on the Board of Sundaram Asset Management Singapore Pte. Ltd.

In his tenure spanning over 13 years, Sunil has handled various responsibilities through which he has been instrumental in expanding Sundaram Mutual’s footprints both domestically and internationally. During the time he has been with Sundaram Mutual, the AUM of Sundaram Mutual has seen a manifold growth.

He has over three decades of work experience in the financial services sector spanning across MNC, Public sector and Private sector companies. The companies he has worked with include State Bank of India, American Express Bank and Bank of America.

Sunil has Masters in Business Administration from The Open University Business School, London and is an MSc graduate from IIT, Madras. He is also a Certified Associate of the Indian Institute of Bankers.

In the last 2 months or so, several fund houses launched equity NFOs. We observed that quite a few of these NFOs were in the mid and small cap segments. Sundaram Mutual Fund’s NFO is a multi-cap fund. Why are you launching a multi-cap fund? What are some advantages / disadvantages of multi-cap funds versus segment specific funds like large cap, midcap etc?

We already have dedicated funds in the large, mid and small cap spaces. Post SEBI recategorization, a multi cap fund was missing from our offering, and launching Sundaram Equity Fund is a step to completing our product bouquet.

A multi cap fund has the ability to be a permanent allocation in every investor’s equity portfolio because it can adjust its allocation to suit market conditions and outlook. So, we think it is appropriate for us to offer this product to investors.

For the benefit of retail investors, especially new investors, please describe in brief your investment strategy, both from the perspective market cap segments and industry sectors?

Essentially the current outlook of the world economy is that of a general slowdown with some countries going into recession. The Indian economy is experiencing a slowdown in some sectors. At the same time, over themedium term, we believe that the world economy will bounce back and the Indian economy also has a positive future. Certain factors support secular growth such as our demographic dividend, our rising per capita income and the huge potential for infrastructure improvement. In this context, the portfolio would have a flexible approach towards large, mid and small caps in secular growth sectors suchas consumption and financial services, and those with a higher risk reward pay-offsuch as cyclical sectors and emerging businesses.

Over the past several weeks FIIs have selling while mutual funds are buying. Some investors, especially those who have been investing through SIPs over the last 2 years or so, are worried. Are you findingattractive investment opportunities in the market at these price levels?

Our study of past economic cycles shows that as long asinvestors stay invested over a complete economic cycle, one has the ability to find multi-baggers across large, mid and small caps irrespective of whether the cycle is virtuous or vicious. Hence, we believe we would be able to find attractive investment opportunities in the market at these price levels.

Coming to corporate earnings, Q4 earnings were weak and many brokerage houses are not upbeat about June quarter earnings as well. What are your views and outlook on corporate earnings?

Corporate earnings outlook will display a variety of earnings growth rates with banks likely to post better earnings, while auto and NBFC sectors may report a lower earning.

Most fund managers we have spoken with are expecting more RBI rate cuts this year. What are your views on interest rates, in light of the fact that US Fed may not cut interest rate again?

We believe the conditions are conducive for the RBI to cut rates in the future as well given the low domestic inflationary expectation and the slowdown in certain sectors of the economy. This is a purely domestic outlook. The US Fed rate cut decision may not affect the RBI decision significantly.

Nifty Midcap 100 Index is down 12% on a year to date basis and down 17% on a trailing 12 months basis; small caps have fared worse. While mid / small caps may correct further due to weak sentiments, from a fundamentals point of view, are thereany attractive investment opportunities now in the midcaps and small caps from a 3 to 5 year perspective?

As stated earlier we believe that regardless of the economic cycle we can always find stocks which have good wealth creation potential provided we hold them for the long term. With government infrastructure expenditure, the quantum of bank credit and rate transmission set to increase there are a significant number of mid and small cap stocks that can offer potential for wealth creation over the medium term at the current price levels.

What will be your stock selection strategy for large cap, midcap and small cap stocks in Sundaram Equity Fund?

The fund will invest in a portfolio of 45-50 stocks of companies, using a blend of top-down sector and bottom-up stock selection approaches. It will adopt a Growth at Reasonable Price (GARP) methodology and combine tenets of both growth and value investing. As stated earlier, the fund will invest in secular growth opportunities in consumption and financial services, cyclical recovery themes (investment pick-up, rate sensitives, global cyclicals) and emerging businesses.

Most multi-cap funds that we have reviewed over the last few months have around 50% allocation to large caps and 50% to mid/small caps. Will you be more aggressive and how your market cap strategy will change over time in relation to relative valuations?

Given the current outlook, the fund is likely to start with a base allocation of 70% in large caps, 20% in mid caps and 10% in small caps with the flexibility to change to more aggressive allocation as positive economic data comes through.The scheme’s asset allocation mix will be designed based on inflexion points - favorable macros (rising capacity utilization and improved manufacturing indicators), growth trajectory of corporate fundamentals, benign rates and a pick-up in credit and liquidity indicators, and a disparity in valuations within cap curves.

What are the industry sectors where you see good growth prospects over the next 3 to 5 years?

Consumption and financial services are the sectors where we see good growth prospects over the next 3 to 5 years. This can be attributed to the rise in per capita income, shift from rural to urban areas, break up of joint families to single family, increasing penetration of the internet bodes well for these industries.

Many investors who redeemed their midcap or small cap are sitting on cash, waiting to re-enter in mutual funds after the election results but many may be apprehensive due to the continued volatility over the last 2 months. What is your advice to such investors and others who want to invest for long term wealth creation?

A systematic strategy implemented using a SIP or STP mode in mid or small cap funds are the best solution for wealth creation for investors who are apprehensive due to the current continued volatility.

Thank you for your time. Advisorkhoj wishes you all the best for your upcoming NFO.

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