Mr. Shyam Bhat joined Principal Asset Management Company Private Ltd as AVP (Investments) in May 2004, and manages Principal Growth Fund and Principal Resurgent India Fund among others.
Prior to joining Principal AMC, Mr. Bhat was associated with Tata Mutual Fund for approximately 10 years where he was a member of the fund management team, managing equity and balanced funds.
With the equity markets on a seemingly endless spiral, Personalfn decided to interview Mr. Bhat to obtain his views on the markets, the economy and how retail investors should position themselves going forward.
Personalfn: What is your view on equity markets at present? How do you expect them to behave over the short-term (6 months) and long-term horizons (3 years) respectively?
Mr. Bhat: I think there is still some steam left in the market over the short-term, but we could see some volatility and minor corrections as well. Over the long-term we are quite positive on the equity market, since we are positive about the growth in Indian corporates. The entry of large long-term investors such as US pension funds could also be a long-term positive from the liquidity perspective.
Personalfn: In your view, what would it take for markets to witness a free fall?
Mr. Bhat: I think events or factors that threaten liquidity and valuations could bring about a reversal in the stock market momentum.
I think a significant percentage of the FII investments that we are seeing in the market are being driven by a weak dollar. So US-based FIIs find it worthwhile to invest in overseas markets. If this was to reverse, i.e. if the US dollar would to start strengthening, then we could see the liquidity drying up.
If there is an event like terrorist attack or global oil crisis, then we could see equity markets weakening globally, and India could be no exception. Similarly if there are concerns about valuations (which could arise, if the current rally continues without a breather), then we could see a correction across certain stocks/sectors.
Personalfn: How do you expect the Indian economy to perform going forward? Any significant positives/negatives?
Mr. Bhat: Though the GDP growth estimate has been lowered, it is reasonably good, nevertheless. However, I think there is trend of consumerism that we have seen of late that is growing unabated. We have seen this increasingly over the last 12 months. As disposable incomes rise, this is likely to continue.
Personalfn: Principal MF has conventionally been associated with schemes that offer stable and steady returns, in the recent times some schemes have displayed a more aggressive streak e.g. the presence of mid cap stocks etc. Is there a conscious decision to adopt a more dynamic approach to fund management?
Mr. Bhat: We continue to pursue a risk controlled investment strategy. What we have done is that of late, we have tried to identify stocks ahead of the market. In terms of mid-cap stocks, in the Principal Growth Fund, we have only a restricted exposure to mid-caps. Even at the peak of the mid cap rally, we had only a 25-30% mid cap allocation. But we have tried to be consistent in our investment approach.
Personalfn: What is the investment/management style, which governs schemes from Principal MF like Principal Growth, Principal Resurgent India Equity, Principal Dividend Yield Fund, Principal Tax Savings and Principal Balanced?
Mr. Bhat: We have clearly demarcated styles for each fund. In the Principal Growth Fund, our flagship diversified equity fund, we are predominantly large cap with a smaller mid cap allocation (about 25%). Principal Equity Fund is a large cap diversified equity fund.
Principal Resurgent India Equity Fund has been positioned as a fund with a dynamic management style and which could have a bias either toward mid-caps or toward large-caps at different points in time, depending upon their relative valuations.
Principal Dividend Yield Fund, which is a value-style fund that invests in companies with a dividend yield of more than 1.5 times the prevailing dividend yield of the Nifty. In the Principal Balanced Fund we have an equity exposure of a maximum of 70%.
Personalfn: According to you what should be the ideal investment horizon for an equity fund investor?
Mr. Bhat: In my view, an investment horizon of 3 years or more, in equities, enables unlocking of value. A systematic investment plan is another investment technique which helps in mitigation of risk in terms of the entry point in an equity fund.
Personalfn: How many stocks should a diversified equity fund ideally hold? Also how much should the top 10 stocks account for?
Mr. Bhat: There could be differing views on this. While a compact portfolio of few stocks, with a very high weightage to the top few stocks could be a reflection of confidence in these stocks, it could also add to volatility. I think diversified equity funds could hold 30-40 stocks, probably closer to 30. The top 10 stocks could account for anything between 35-50% of net assets.
Personalfn: What is your view on sector funds? Do you think the risk associated with them is adequately conveyed to investors?
Mr. Bhat: I think in 1999-2000 probably investors did not understand the risks associated with sector funds, particularly tech funds. But investors appear to be better informed today than they were 5 years ago.
Personalfn: What advice would you offer to a retail investor at this stage?
Mr. Bhat: At all times I would advise investors to invest in a manner appropriate to their age, income stream, return expectations and risk appetite.
Personalfn: Where do you invest your money? Do you invest in schemes, which you manage?
Mr. Bhat: I invest in funds managed by me now, as also in funds that I used to manage in my earlier employment with Tata Mutual Fund.
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