Download Q1: What is your reading of the state of Indian economy

Interview with Mr. Aniket Inamdar, Senior Fund Manager, Deutsche Mutual Fund
Mr. Aniket Inamdar is the Senior Fund Manager, Equities with Deutsche Mutual Fund and is
currently managing two schemes namely DWS Investment Opportunities and DWS Alpha Equity.
He has joined the AMC as recently as in May 2007 and the sudden turnaround in the returns of
the schemes managed by him is an ample reflection of his fund management skills. BCCIR had
an opportunity to interact with Mr. Aniket on issues related to broader economy as well as equity
markets and the performance of his funds. Excerpts of our interview with Mr. Aniket are as under:
Q1
We have seen remarkable improvement in the performance of some schemes like
DWS Alpha Equity Fund and DWS Investment Opportunities Fund. Is it because of
the change in the whole investment process or good stock picking in the recent
times? Please throw some light on your investment process.
Ans: All the three schemes managed by us, DWS Alpha, DWS Investment Opportunity and
DWS Tax Saving have performed well during the year. The performance is a result of some
sectoral calls and some bottom up stock picks. The portfolios were overweight on capital
goods, natural resources and steel sectors which helped performance. The portfolios were
underweight on IT services, pharma, auto which were sectors that saw lackluster
performance.
Our investment approach is to have a combination of top down and bottom up strategies.
We typically don’t have very large number of stocks in the portfolios but ensure that there
is adequate diversification. Our portfolios are always fully invested. We believe that it is
stock selection rather than taking aggressive cash calls that will deliver superior and
consistent returns.
Q2
What is your reading of the state of the Indian economy?
Ans: The macro-economic outlook appears positive. Inflation is under control while interest rates
appear to have peaked. The twin drivers of corporate capital expenditure and infrastructure
build-out will ensure that the domestic manufacturing sector does well on a multi-year
basis. Tax collection numbers are quite buoyant. While the economy is unlikely to grow at
the 9% pace seen in the recent past, we believe that GDP growth is likely to be at around
8% for FY09 which is quite robust.
Q3
How do you see corporate earnings for FY08 and FY09?
Ans: We feel that with a long term GDP growth rate between 7.5 to 8%, earnings growth is likely
to be in the 15-20%. There are likely to be many stocks that would be growing much faster
than this rate.
Q4
What is your sense of FII flows in Indian market for the next quarter, since last
quarter in US is expected to be bad?
Ans: While we cannot predict flows, it must be noted that India would still be one of the fastest
growing economies in the world in CY08. Also, the impact of a possible slowdown in the US
would be relatively lower on the Indian economy than it would be on many economies
which are more export oriented. Hence, India would remain on the map of foreign investors,
though the quantum of flows cannot be predicted. Domestic liquidity appears positive
considering the expected inflows to insurance companies and mutual funds.
Q5
Which sectors look promising for next one or two years?
Ans: Capital goods, engineering, natural resources, steel, select stocks in the energy sector look
promising from a long term point of view.
Q6
Would you take a contrarian call on some sectors like technology, auto, real estate
and pharma?
Ans: Sectors like technology, pharma and autos have underperformed significantly in 2007.
Valuations for these sectors are not demanding. However, each of these sectors has its
own sector specific drivers. For eg. Many investors are waiting to see the impact of a
possible slowdown in the US on Indian software companies. There are concerns on billing
rates as well as on volume growth for the next year. Naturally, if the growth rates do not
slow down drastically or of there are no billing rate pressures visible, the sector should do
much better in 2008. As we progress into 2008 investors will get a much better handle on
these issues. Overall, these sectors will be keenly watched by investors.
Q7
Midcap stocks have seen run up in recent times and some mutual funds have also
started deploying money into mid cap space. What is your call on this space and do
you find mid cap more interesting than large cap in the coming year?
Ans: We look at stocks based on their long term growth potential. Mid and small caps are always
interesting in the sense that most of the emerging leaders come from the mid and small cap
space. But that does not mean large caps do not have the potential of giving strong returns.
We expect small and mid caps to do well in 2008. After the meaningful out-performance of
small and mid-caps over large caps in the last two months of 2007, we feel activity in small
and mid cap space will turn more stock specific rather than broad based as is being
witnessed now. We believe there are plenty of opportunities in the market on a stock
specific basis.
Q8
What would be your strategy to cope up with the volatility while managing your
funds?
Ans: The high level of volatility which we saw in 2007 can be expected in 2008 as well. One
should not get unduly swayed by new term news flow and events but focus on buying
quality stocks with good long term potential.
Q9
What is your advice to retail investors amid high volatility in the equity markets?
Ans: The last few years have been very rewarding for investors. We like the long term potential
of the Indian economy and hence, are positive on the equity markets. Going forward,
investors should have more realistic expectations of returns. Investors should not focus on
excessive trading or get unduly worried in periods of high volatility but should invest with a
3 year horizon in mind.