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Fund manager roundtable: Does mkt have further room to run?

The Morningstar Investment Conference held recently saw a few of India’s top fund managers take the stage in an interaction to discuss their outlook on stocks, markets and investing.

Between them, HDFC Mutual Fund’s Prashant Jain, Reliance Mutual Fund’s Sunil Singhania, Birla Sun Life Mutual Fund’s Mahesh Patil and UTI Mutual Fund’s Anoop Bhaskar oversee assets under management of about Rs 4.5 lakh crore, or slightly less than half the entire fund industry’s asset base.

The session was moderated by Morningstar director of fund research Niranjan Risbood.

Below is a transcript of the discussion as it aired on CNBC-TV18.

Risbood: You have always been a strong advocate if growth at reasonable price. On the growth side we are seeing some kind of greenshoots in terms of corporate profitability improving, probably corporate profits this quarter have gone up by may be 10-12 percent. You are also hearing about GDP growth forecast being increased by IMF and the likes. The question really is in terms of reasonable price with the market already run up almost 40 percent since September last year is there reasonable price really available in the market as of now?

Jain: It depends on perspective. You are right that in the last few months markets have done quite well, however if you go back six years when markets were up only 30 percent. In January 2008 Sensex was at 21000, today it is 28000, it is up may be 40 percent. Over this period the nominal GDP growth has been far in excess of this.

I think the most important metrics is the PE multiple. PEs are at about 16 odd times which is quite reasonable in my opinion. I don’t think the earnings are being over estimated because corporate profitability in India is at a 17-18 year low. So, I would say things look quite good and decent to me.

Risbood: Like midcaps you have seen have rallied almost 70 percent from the September lows and maybe a few stocks which were looking good might be up even 200-300 percent. So, are you finding value in midcaps or still there are some bottom up stocks available wherein you find value in that space?

Bhaskar: More than the midcap segment, the segment that worries us is now is the smallcap segment because there, there has been almost a bubble like kind of move that has happened. So, if you look at the BSE smallcap index almost 43 percent of the stocks there have given a return of more than 100 percent in the last 12 months.

Almost 10 percent of the stocks of the index have given a return of just more than 400 percent return. If I was to ask out here which were the two best performing stocks from that index I don’t know whether anyone would know those companies and those companies are up by figure of 30 times and 20 times. So, that is the segment of market where there has been a lot of speculation. So that worries to some extent.

Today the smallcap index trades at a premium to the Nifty which usually is a good signal for us to be a little cautious on that part of the market. In terms of the midcap the value part of it has got eroded because of the move that is there but there is always expectation that when you are at the turning point of economy and when you are going to see a cusp of higher growth in terms of GDP growth rate and lower inflation and lower interest rate then this segment tends to grow at a much faster than the case of largecaps and that is the kind of hypothesis that everyone today has about that segment.

However, if you see the actual signs of earnings growth are still very moderate. So, it is more of the case that in the past when we have had this kind of scenario then it has been followed by very high growth. So, people are looking at that expectation as such for the segment.

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