thetimesofabslmf

Fund manager with over `3,700 bn

under AUM sees Niy earnings growing
at 13-15% CAGR over next 3 years
A detailed interview of our CIO – Equity, Mr Mahesh Patil – Aditya Birla Sun
Life AMC Limited which was published in Economic Times on 12th August 2022.

Synopsis
Nifty50 now trades at 1-year forward PE of
19x, above the long-term average of 18x.
For the short term, there could be
intermittent corrections considering the
global scenario. Therefore, our
range-bound view for the Nifty remains.
However, on a medium-to-long-term basis,
we continue to remain constructive on Indian equities," says Mahesh
Patil, CIO, Aditya Birla Sun Life AMC.
“Over the medium to longer term, we expect Nifty earnings to grow at
13-15% CAGR over next three years which should also lead to
double-digit returns from equities,” says Mahesh Patil, CIO, Aditya
Birla Sun Life AMC.
In an interview with ETMarkets, Patil who has about 24 years of
experience in fund management and manages `3706 bn of AUM,
said: “Timing the market is not advisable for investors. We recommend
that investors continue their SIPs and use any correction to add some
lumpsum amount and increase their equity exposure,”

Continued...

209.55(w) x 274.32(h)
thetimesofabslmf
What are your views on markets after a strong rally seen in July
which pushed benchmark indices above crucial resistance levels?
Markets have bounced back smartly in Jul ‘22 with Nifty-50 rose by
about 9 per cent on a month-on-month basis which almost wiped out the
entire YTD’CY22 decline.
We are yet to see any downgrades to earnings estimates despite several
emerging risks such as slowing growth (both global & domestic),
adverse policy interventions in the form of export/import duties, INR
depreciation, and rising rates.
The Nifty50 is now almost flat for YTD’CY22 and strongly
outperforming the global markets despite sharp FII selling seen since
Oct’21 - Jun’22.
After the current rally, valuations have also risen and the Nifty50 now
trades at 1-year forward PE of 19x, above the long-term average of 18x.
Upside from here will be a function of stability in global and local
macro conditions and continued earnings delivery versus expectations.
Hence, for the short term, there could be intermittent corrections
considering the global scenario. Therefore, our range-bound view for the
Nifty remains.
However, on a medium-to-long-term basis, we continue to remain
constructive on Indian equities.
What is your take on the US Fed after the recent 75 bps rate hike?
Though in its recent meeting, the US Fed raised policy rate by 75bps,
the important point to note was that comments from Fed Chairman were
less hawkish than earlier.
This suggests that the pace of rate hikes may slow down in the
upcoming meetings and will be more data dependent. Contraction in US
GDP for Q2CY22 also bolstered the case for moderation in policy
tightening.

Continued...

209.55(w) x 274.32(h)
thetimesofabslmf
Globally, some of the leading indicators such as PMI new orders, global
real money supply and housing markets in US and China are pointing to
an economic slowdown.
This has led to downside pressure on bond yields across the world, which
created a tailwind for global equities. Going forward, we believe
recession if any in US is expected to be mild in nature.
How are you evaluating risk-to-reward for Indian markets,
especially after a recent rally?
The Nifty50 has seen a rally bolstered by positive global macro
developments, economic recovery in India, and return of FII flows in
addition to resilient domestic flows. The key catalyst for markets would
now be earnings growth.
Most high-frequency indicators are above their pre-covid levels which
gives confidence that India’s economy is on the recovery track.
However, a deepening global economic downturn and tightening liquidity
is likely to impact India as well which will compress earnings growth
slightly for FY23. At the same time, commodity prices have also started
to ease.
The impact of reduced commodity cost is expected to show up in margins
in the coming quarters. Hence, earnings downgrade may not be high.
Considering a possible earnings downgrade and the fact valuations are
back above their long-term average, we expect Nifty to be range bound in
the near term.
However, over the medium to longer term, we expect Nifty earnings to
grow at 13-15% CAGR over next three years which should also lead to
double-digit returns from equities.
Timing the market is not advisable for investors. We recommend that
investors continue their SIPs and use any correction to add some
lumpsum amount and increase their equity exposure.

Continued...

209.55(w) x 274.32(h)
thetimesofabslmf
There is a lot of scrutiny on the new-age companies. Some analysts
have gone out and said that they are no less than Ponzi schemes.
What are your views?
Some new-age companies which had stellar listings in 2021 have
corrected over the last few months as excess liquidity has started reducing
and some of these companies have been disappointed on their financial
performance.
However, all new-age companies cannot be seen from the same lens.
Business models for such companies are unique and in contrast to
traditional asset-heavy firms.
Few of these companies operate in sustainable industries and have the
potential to disrupt the same.
Unit economics as well as being established leaders in their operations
are important factors to look at.
Another important point to note is that not all of these companies
generate positive cash flows/profits, hence conventional methods of
valuation cannot be relied upon to discover their intrinsic values.
Therefore, investors need to rely on different metrics viz. key
performance indicators to gauge their true potential.
At the same time, the changing stance of new-age companies towards
increasing their focus on generating profits should aid investors in the
times to come. We are constructive on some of these names and expect
them to be future winners.
What is your take on small & midcap space if someone is looking at
investing from a 3–5-year time period?
The Indian economy is expected to be in an expansion phase over the
next 3-5 years and be amongst the best performing economies in the
world.
Since small and midcap companies have more exposure to the domestic

Continued...

209.55(w) x 274.32(h)
thetimesofabslmf
economy than the large cap companies, they would tend to benefit to a
greater extent and hence we remain constructive on this space over a
long-term horizon. Also, there are many emerging companies that are
coming up lately thus providing opportunities to generate alpha.
At the same time, investors should be mindful that mid and small cap
stocks have rebounded in the month of July and now trade above the
long-term average.
Hence, from a valuation perspective, they are not cheap, and one has to
be careful in picking the right stocks. investors can consider having a SIP
in Midcap and Smallcap funds with a 3–5-year horizon.
What is your take on FIIs outflows which have now slowed down,
especially in July? Do you see a reversal anytime soon?
FPIs which remained net sellers in the domestic markets for the past
nine months, invested US$650Mn in the Indian markets in the month of
Jul ’22.
Although small, this suggests an improvement in FII sentiment which
should support both the markets and INR going forward. Global macro
conditions have a crucial role to play with regard to FII inflows.
The fact that the US Fed has toned down its hawkish stance and the fall in
crude prices should support FII inflows.
The geopolitical and deepening real estate crisis in China also leaves
lesser opportunities for FIIs in EM pack and thus should aid flows to
India.
At the same time, domestic broad-based recovery, improvement in high
performance indicators, fall in most commodity prices leading to
bottoming of margins are positive triggers.
Given these factors, we believe going forward FIIs flows should improve
and India’s weightage in MSCI EM index which has come down lately
should increase gradually.

Continued...

209.55(w) x 274.32(h)
thetimesofabslmf
What is your take on commodity-linked stocks (commodity prices
have eased)? Should one consider them buying?
Commodities started to ease out in Q1 which impacted the stocks of
commodity producers such as Metal stocks. On the other hand, the
impact of reduced commodity cost is expected to show up in the margins
of commodity consumers in the coming quarters.
Except for a few, most companies in their quarterly commentary have
highlighted that there is no requirement to take further price actions.
Most sectors like FMCG, Discretionary etc. shared this trend in their
quarterly results. We believe companies in these sectors are likely to be
direct beneficiaries with lower input prices. However, this is already
factored in their valuations currently.
Going forward, their future growth will be dependent on volume
recovery.
In case global does go through a recessionary phase – how do you see
India? Do you think we are well placed to handle recession and
which sectors are likely to get impacted the most?
Globally some of the leading indicators such as PMI new orders, global
real money supply, and housing markets in the US and China are pointing
to recession fears, but we believe the Indian economy remains resilient,
and most high-frequency indicators point towards a broad-based
recovery.
Also, no significant surprises are expected in the earnings season and thus
far, overall management commentary and outlook has been positive.
Hence domestic consumption and investment, especially government
CAPEX, should hold up.
Sectors that have a higher dependence on exports such as IT, Metals, and
some Auto and auto ancillary companies are relatively more impacted in
case of a global recession.

Continued...

209.55(w) x 274.32(h)
thetimesofabslmf
After the recent performance of new age companies, do you think
India Inc. might have deferred future launches? How do you see
fundraising for the rest of 2022?
After a spree of IPOs in 2021, we have only seen a handful of IPOs in the
current year. The pace of IPOs has slowed down in an environment
impaired by geopolitical uncertainty, market volatility and reduced
liquidity.
Nevertheless, there have been some prominent listings this fiscal year and
a few marquee names are expected to hit the markets in the coming
months.
However, we believe volatility is expected to continue going forward,
hence the number of IPOs this year will be much lesser than what we had
seen in 2021.
Once the environment of uncertainty wanes, we should see a smooth flow
of IPOs again.
(Disclaimer: Recommendations, suggestions, views and opinions given
by the experts are their own. These do not represent the views of
Economic Times)

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

209.55(w) x 274.32(h)