Valuations are no longer a major concern for investors, quality stock picking is key to success: Sundaram MF
Summary
According to Sunil Subramaniam, despite high valuations, the disciplined deployment of funds, combined with the expertise of fund managers in picking quality stocks, ensures that the market remains healthy. The growing confidence of Indian investors in mutual funds further underscores the positive outlook for the sector.
Sunil Subramaniam, MD & CEO of Sundaram Mutual Fund in an interview with CNBC-TV18, highlighted that current valuations do not seem to be a major concern for investors. He noted that mutual fund managers are constrained by risk management disciplines, which typically prevent them from holding more than 5% to 10% of their assets in cash.
This means that the majority of incoming funds – around 90% – must be actively deployed in the market, irrespective of high valuations.
“Currently, valuations don’t seem to worry people at all. If customers are giving fund managers money, risk management discipline will not allow you to take cash calls in mutual fund of more than 5% or maximum of 10%. That means 90% of the money that comes in has to be deployed,” Subramaniam explained.
He further said that the recent selling by Foreign Institutional Investors (FIIs) has created opportunities for domestic mutual fund managers to acquire stocks at reasonable prices, thereby maintaining a healthy investment space. “Good thing for domestic mutual fund managers is that FIIs have been selling, which means that you are getting some stocks at fairly reasonable prices.”
Addressing concerns about high valuations, Subramaniam argued that what appears expensive on a one-year forward basis might look much more reasonable over a three to five-year period. The expertise of fund managers and their research capabilities play a crucial role in identifying companies that are likely to experience a V-shaped recovery, thus justifying the valuations.
“Valuation-wise, what’s looking very expensive from a one-year forward, will look very reasonable when you do a three-year forward or a five-year forward basis,” he said. Subramaniam stressed the importance of quality stock picking through thorough analytics, which mitigates the risk associated with seemingly high valuations in the short term.
Subramaniam also highlighted the confidence of Indian investors in the economy’s future. He noted a significant shift from traditional bank deposits to mutual funds, with a growing allocation of investments into equities.
“I don’t think the Indian investor has any doubt about the future of the economy. And I think the shift from bank deposits to mutual funds is well underway,” he remarked. He pointed out that while some investors are opting for direct equities, mutual funds continue to capture a substantial share of the incremental allocations.
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