With over three decades of experience, LIC Mutual Fund, focuses on ethical principles and good corporate governance. They aim to penetrate tier 2, 3, and 4 cities and educate investors about the importance of mutual funds. Despite recent headwinds, they believe the Indian equity market has support on the downside and upside potential depends on earnings trajectory and monsoon performance. LIC MF’s strategy is to identify companies with strong competitive positions and quality management.
In an exclusive interview with Livemint Dikshit Mittal, Fund Manager & Senior Equity Research Analyst LIC Mutual Fund Asset Management Ltd said they are positive on auto, BFSI, capital goods, and export-led manufacturing sectors.
What makes LIC Mutual Fund unique and how does it differ from other mutual funds?
LIC MF has been in the industry for over 3 decades. With LIC of India as its sponsor, the mutual fund has been operating in an Industry despite stiff competition from other players. Indian Mutual Fund Industry, over the years, has witnessed structural changes including multiple rounds of M&A activities, credit shocks, and increasing regulatory scrutiny. LIC Mutual Fund continues to remain true to our core i.e. ethical principles and good corporate governance. We continue to stay true to our brand ethos of inspiring trust, sustaining purity & fuelling growth.
Given that there are currently so many companies in the market, why would individuals choose LIC MF?
Our focus area is to penetrate tier 2,3,4 and beyond cities where Mutual Fund penetration is low. We wish to extend our Investment service and help educate and make the investor aware of the importance of investing in Mutual Funds. Our philosophy is of investing ethically with good corporate governance which may result in long-term wealth creation for our investors.
Equity markets at an all-time high? What’s your view on where the markets are heading?
Though the equity market has hit all-time highs, if we expand the horizon a little, over the last one and half years the Indian equity market has actually delivered a flat return. During this period market has grappled with a lot of headwinds like run-away inflation, a sharp rise in interest rates, and global uncertainty. While markets have consolidated during the last several months, nifty earnings have continued to grow at double digits, providing support to the market. Going forward as well, we have reasonably strong earning visibility led by sectors like financials, auto, oil & gas, etc. In addition, a fall in commodity prices is likely to support consumer sector earnings as well. I believe the bulk of the drag on the markets due to high inflation and high-interest rates is behind us. However, we still have to grapple with issues like demand slowdown on the consumer level, which can limit to extent of operating margin expansion expected by current earnings estimates.
All in all, while I believe the market has support on the downside- limiting downside risk, the major upside will depend on earning trajectory which further depends on how the monsoon pans out. If monsoons are normal and rural economy does well, I expect the market to break out on the upside, provided globally there is no major black swan event.
What’s your strategy for your equity MF in this market?
At LIC MF, our endeavour is to identify companies with a strong competitive position in a good business and have quality management. We focus on top-down and bottom-up approaches for stock selection and focus on fundamental-driven investment with a scope for healthy future growth. We have different equity products, which follow their own strategies. – for instance, our recently launched funds in the Balanced Advantage Fund category and Multicap Fund category, take into account macro factors like interest rates and earnings growth to arrive at market allocation, while other products in the Large & Midcap Fund category, ELSS category and Flexi cap category focus on finding sectors and stocks which have a long runway for growth, have demonstrated capital efficiency, clean management, and have clear competitive advantages.
What sectors and companies do you think will outperform this year?
We are positive on Auto, BFSI, Capital Goods, and export-led manufacturing sectors. Some of the consumer-facing companies have also seen valuation normalizing during the recent market corrections, which can do well provided we have a normal monsoon.
FIIs have been buying while DIIs have been net sellers. What’s your assessment of this?
Capital flows are dependent on investors’ expectations of future returns and alternate investment options. India has seen considerable improvement in macros as compared to its EM peers.
Improving macros, supportive government policies and political stability are key points that are attracting foreign investors. On a bigger picture basis, domestic investors also have poured a large amount of money into markets- which is reflected in robust SIP flows
Where do you think Nifty will be by the end of this calendar year?
While its difficult to predict market levels into the future, over long periods of time, equity returns follow earnings, which in turn depends on nominal GDP growth. Post recent consolidation, market valuations at 19x one-year forward earnings based on Bloomberg estimates are reasonable. I expect low double-digit market returns as I expect corporates to follow expected earning growth.
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