Rajat Chandak, Fund Manager, ICICI Prudential Asset Management Company Limited

We continue to believe that markets are likely to remain volatile over the next 12 months, owing to both domestic and global developments.

Aug 13, 2018 05:08 IST India Infoline News Service

Rajat Chandak, Fund Manager, ICICI Prudential Asset Management Company Limited
Rajat Chandak, Fund Manager, ICICI Prudential Asset Management Company Limited, co-manages several flagship funds including ICICI Prudential Balanced Advantage Fund, ICICI Prudential Select R.I.G.H.T. Fund, ICICI Prudential India Recovery Fund (Series 4) and ICICI Prudential Value Fund (Series 4 & 11). He also manages the equity portion of funds like ICICI Prudential Monthly Income Plan, ICICI Prudential Regular income Fund, ICICI Prudential MIP 25 and ICICI Prudential Child Care Plan (Study). He joined ICICI Prudential AMC in May 2008. He believes in growth style of investing with a blend of value conscious approach, which essentially makes him a Growth at Reasonable Price (GARP) investor. He puts emphasis on quality and long-term growth potential with a fair price in mind. He thoroughly scrutinizes financial metrics and management track record while identifying the right investment picks for his portfolio. Also, he relies on both top-down and bottom-up strategies for stock selection. He would be wary of companies with poor corporate governance. Also, if a particular sector or theme has failed to create long-term wealth globally, he would put a lens of caution towards companies of such a sector. He started his career with ICICI Prudential AMC and has been with firm since then garnering an overall work experience of more than 9 years. He completed B.Com from Sydenham College of Commerce and Economics in 2005 and M.B.A. in Finance from the Institute for Financial Management and Research (IFMR) in 2008.
 
In an interaction with IIFLRajat Chandak, Fund Manager, ICICI Prudential Asset Management Company Limited, said, “We continue to believe that markets are likely to remain volatile over the next 12 months, owing to both domestic and global developments.
 
Midcap and smallcap stocks have corrected significantly recently. Do you see opportunity in the mid-cap and small-cap space now or one should still wait?
We have seen correction in Mid and Small cap space, but they still remain at higher valuations compared to large cap. We recommend staggered or SIP route for investing in mid and small cap schemes with a long investment horizon.
 
How do you see market shaping up in the coming quarters with general elections in May 2019?
We continue to believe that markets are likely to remain volatile over the next 12 months, owing to both domestic and global developments. Some of the key risks to watch out are higher global interest rates, volatility in crude oil price, and the Government’s commitment towards fiscal discipline in the run-up to the 2019 elections.
 
The fund is going to play the consumption theme but we have already seen a rally in the stocks within the consumption related sectors? How do you see the valuations at this juncture? Kindly brief us about your investment strategy?
The fact that Consumption sector (mainly FMCG) valuations are stretched now relative to last 10 years history and now back to late 1990’s levels is true. However, one should consider the following while making this comparison –
  1. Growth rates of FY15-18 mentioned at 8.5% is backward looking and we are seeing a cyclical demand uptick due to which we expect FY18-21 EPS CAGR of ~15% for the sector.
  2. Sector has historically always traded at 50-100% premium to market which is justified due to high standards of corporate governance followed by the sector, sharp on-the-ground execution leading to lower earnings volatility and strong cash generation and high return ratios.
  3. Current PE also has to be viewed in context of lower global and local cost of capital and thus even with lower absolute growth than late 90's, higher PE can be justified.
  4. Overall, one could expect the sector to relatively remain volatile in the medium term but will always have good bottom-up opportunities given varied segments and business models, thus presenting an opportunity to invest in the sector wherever risk-reward is better.
  5. In consumption sector, there are pockets which still provides a better risk adjusted returns and should be considered for playing the Indian Consumption theme. For example, Auto Sector has been under stress due to increase in commodity price and due to rising competitive intensity, Multiplexes - due to noise of allowing outside food and capping prices of items sold inside the theatres, Durables - as summer season was not very good as anticipated, Airlines - due to rising crude and depreciating INR, which in-turn have adverse impact on their profitability and even in FMCG, there are some stocks which are trading almost at reasonable valuations.
 
What is your assessment of the earnings across overall market for 2018 so far?
Over the last two quarters, there have been some signs of recovery in select sectors, signalling the improvement in the business scenario. In line with our expectations, majority of the companies, barring banking sector, have shown reasonable growth in their numbers and this can be partly due to the low base effect and revival in economic activity.
 
What is your assessment on the macros with CAD widening and inflation rising, how do you see this impacting the market?
The twin deficits have started to widen mainly due to the volatility in the oil prices. This can have negative impact on inflation and in-turn can drive the domestic interest rates higher. This will result in increased interest burden on many companies and can affect company their profitability, which would be negative for market.

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