Mr. Harish Krishnan

CO CIO and head - Equity Aditya Birla Sun Life AMC Limited

Mr. Harish Krishnan has as an experience of nearly 20 years in the Asset Management industry, both domestically and internationally.

Prior to joining Aditya Birla Sun Life AMC Limited (“ABSLAMC”) as the Co-CIO and Head Equity, he was associated with Kotak Mutual Fund for more than 10 years as Senior Fund Manager - Equity. He has also worked at Kotak Mahindra (UK) Limited where he managed offshore funds based out of Singapore and Dubai.

He holds a Bachelor’s Degree in Engineering from the Government College, Trichur and has done his PGDBM from IIM Kozhikode. He is also a Chartered Financial Analyst from CFA Institute, USA.

Q1. The small & midcaps took off in 2023 - will the flight land in 2024 or will it gain altitude in the new year?

Ans: We expect a year of consolidation in broader markets. Last year, almost 50% of Top 500 stocks had an alpha of 10% compared to NSE500TR. Risk taking was very well rewarded, we think after such a strong year, gains to moderate across the breadth of market. Over longer term, we remain positive on mid and smallcaps, but excessive returns of small over large will likely fade, as economy and earnings normalise after strong upturn in last few years (post Covid)

Q2. PSU remained in the spotlight in 2023. Will the party continue in 2024?

Ans: Certain pockets of PSU like defence/railways have outsized gains in last 3 years. Valuation of certain indices like NSE Defence index is close to 10x price to book trailing, higher than even consumption index. In the face of such extreme valuations, we expect such pockets to face challenges (exact timing is hard). PSU in utilities, select financial appear more reasonable despite the run up. Sentiment has turned extremely faviurable, and with run up in elections and expectations of stable government, there may be continued momentum in this space in near-term.

Q3. The year gone by was a landmark year for IPOs. What is the kind of fundraising you foresee in 2024?

Ans: 2023 has been a good year, with abundant liquidity and favourable sentiment. While liquidity expectations continue to remain strong, it is hard to gauge sentiment in a year where there are multiple global elections (including in India). We would expect sustained fund raising till sentiment remains buoyant for India.

Q4. After listening to the budget speech, would you recommend any changes in the portfolio or just stick with what you have?

Ans: The Vote of Account budget continues to focus on maintaining its path of fiscal prudence and thus, there are no changes in our portfolio construct.

Q5. As a fund manager, which themes you are betting on and believe will do well in 2024 considering the upcoming elections?

Ans: We think investment theme will continue to gain traction, consumption continues to be on slow lane. Given elections, there was expectations that there will be greater sops to consumption segment, which the government has not pursued (in vote on account budget). Similarly, focus on sectors like gas pipelines, renewable push, digital infrastructure rollout, exports focus continues to be areas of thrust of current government, which can see renewed thrust post elections. We are playing this through our exposure in capital goods, auto, select financials, pharma, manufacturing companies.

Q6. As the market reaches record high, many investors become hesitant before putting in money. What would you advise them?

Ans: Time in the market is more important than timing the market. Last year, while index like NSE500 gave close to 25% returns, if one had missed out the best 10 trading days, returns would have come down to 11%.

Equities are an avenue for long term goals, Indian equities are well poised given competent management teams, multiple reforms, productivity gains and good balance sheets of corporate India. However, valuation in near term are above long term valuations, we would advise investors therefore to invest with long term view. Within this construct, rather than fret over markets at highs, we would advise investors to use asset allocation framework. Products like Multi-asset allocation funds provide a solution for investor asset allocation needs.

Mr. Kaustubh Gupta

Co-Head - Fixed Income Aditya Birla Sun Life AMC Limited

Mr. Kaustubh Gupta is the Co-Head of Fixed Income at Aditya Birla Sun Life AMC Limited (ABSLAMC). Kaustubh brings with him 17 years of extensive investment experience having worked in various capacity of treasury finance, liquidity management and fund management. As Co-Head, Kaustubh leads the overall fixed income portfolio management.

Prior to joining ABSLAMC in 2009, Kaustubh worked with ICICI Bank for 5 year in the Asset Liability Management team.

Kaustubh is a Chartered Account and CFA (Level 2) by qualification.

Q1. How does 2024 look up for the Indian debt market? What are the key factors that will drive inflows?

Ans: The entire yield curve between 1-3 year is available at 7.75% - 8.0%. Given our macro views, these rates are unlikely to inch up much higher. Nominal yield curve is elevated and, on a risk reward basis fixed income looks like an investible asset class beyond the asset allocation principle. Further this year India G-sec market will get large allocation in JP Morgan global bond indices which could pull benchmark yields lower. Thus for 2024, we think time for dialling in active duration risk through short-term funds (Short term fund, corporate bond fund, and Banking & PSU fund) is apt now.

Q2. How would you rate the interim budget on a scale of 1-10 and why?

Ans: This year budget can be simplified as “ Bond budget”. Not only government has stick to path of fiscal consolidation, they have surprized market, but much lesser borrowing number compared to consensus. We think this year’s interim budget is non inflation and primary targeted to achieve macro stability in uncertain global macro backdrop for global economy. Thus, we would rate budget 9/10.

Q3. In the Interim Budget 2024, the government has given a lower-than-expected fiscal deficit target of 5.1% of GDP for FY25 and even lower 4.5% by 2025-26. How do you interpret this?

Ans: We would read this budget numbers to conservative, credible and focused upon prioritising macro stability over short term push to support growth.

Q4. For five consecutive policy reviews in 2023, the RBI chose to hold rates, citing inflation threat. Is there any possibility of interest rate softening in 2024?

Ans: We expect headline rates to remain status quo for most part of 2024 with possibility of a shallow rate easing cycle at the end of 2024 unless growth slows down to sub 6%. As global central bankers ease rates, RBI will respond to this with liquidity infusion measures and regulatory relaxations but most of them will be back ended.

Q5. Can you discuss your approach to select debt securities in the current market, emphasizing liquidity and credit quality?

Ans: Debt markets face three types of exposure: credit, liquidity, and interest rate risk. Although it is important to look at these in isolation to identify individual risk, but as active debt manager we also use interplay of all of them on the overall investment strategy of funds. Assessment of various probable economic scenarios impacts the kind of asset mix portfolio construction will be guided through. In current scenario, we think liquidity play and duration play is going to give most of fixed income returns to investors. Accordingly, we are overweight G Sec across our portfolio and running higher duration. Over course of next 3-6 months, if our view plays out we will switch to AAA corporate bonds to benefit from liquidity opportunity as well. We continue to remain underweight credit spreads because it is priced richly.

Q6. In the wake of budget 2024, what kind of investment strategy do you suggest for bond investors?

Ans: Time is ripe for adding duration to fixed income portfolios. With in that actively managed duration funds will do well to play duration on liquidity infusion play. We are also coming out with Index fund opportunities themed around Bond indices inclusion at minimal expense which will invest only in FAR securities. These will be managed passively and could turn out to be the good risk adjusted capital gains opportunity. Short-term investors should look to invest in money market, ultra-short-term funds & low duration funds over liquid funds.

Ms. Shibani Sircar Kurian

Fund Manager - Kotak Mutual Fund

Ms. Shibani Sircar Kurian has a PGDM (Specialization in Finance), BSc (Hons)- Economics. Ms. Shibani Sircar Kurian has a total experience of 20 years in the Indian equity markets of which almost more than 12 years have been with Kotak Mahindra Asset Management Company Limited. Her primary responsibilities include equity fund management and heading the equity research team. Prior to joining Kotak Mahindra Asset Management Company Limited, she worked for almost 6 years with UTI Asset Management Company Limited. and for 1 and half years with Dawnay Day AV Financial Services. She holds a PGDM (with a specialization in Finance) from T.A. Pai Management Institute, Manipal and a BSc (Hons) in Economics from St. Xavier’s College, Kolkata.

1. Mid- and small-cap stocks have suffered the most from volatility across various market categories, whilst large-cap equities have stayed largely stable? What is your view on these segments? Do you foresee any further volatility?

Ans: We continue with our relative preference for large caps over mid and small caps in the near term. At the current juncture, we see better risk-reward in large caps. From their peaks, till 27th Oct, Nifty is down 5.7%, NSE Midcap is down 6.6% and NSE Small cap is down 3.2% whereas from the lows to their peaks the indices were up 19%, 41% and 50% respectively. Midcap and small cap indices are trading at multiples (on a one year forward P/E basis) which are higher than long term average while the Nifty is trading at multiples which are at long term averages. Further, market cap contributions of mid and small cap companies have continued to expand from their CY20 lows and now are close to their Dec 2017 highs while large caps are near their lows. With this backdrop, we believe that the recent pullback in midcap and small caps has not been meaningful. Hence, while we are positive on midcap and small caps in the mid to long term, near term volatility is a possibility that can’t be ruled out.

2. what role does forensic accounting have? What impact does it have in the stock selection process?

Ans: Forensic accounting analysis is an attempt at identifying manipulated statements or imprudent capital allocation measures as well as corporate governance practises of the management of the company. This identification exercise is important to assess the fair value of a company by analysing beyond the headline reported numbers which may form basis of the valuation framework. It helps in identifying accounting red flag which may impact the sustainability of the business. Hence, undertaking the forensic analysis on the companies on a regular basis should be an integral part of the stock evaluation process.

3. As a fund house how do you handle market volatility and economic uncertainties? Do you adhere to any particular strategies?

Ans: As a fund house, our philosophy of portfolio construction has been bottom up stock picking but with a top down thematic overall. We are growth biased but seek to identify high growth, high quality companies trading at reasonable valuations. During periods of uncertainty, we continue to adhere to our process and philosophy focusing on identifying companies using our BMV (Business – Management- Valuation) framework. Quality anchoring at this stage is extremely important. Broken balance sheets and broken businesses should be avoided, leverage should be avoided at any cost. Also, stock selection should be very selective where there is earnings visibility and predictability.

4. While analysing a stock what is the investment horizon that you consider and why? What minimal upside potential should a stock have in order to be included in your portfolio?

Ans: We have investment horizon of minimum 1 year and earnings forecast for at least 2 years when we have analyse stocks while also taking into consideration the long term growth potential beyond this timeframe. This allows fair timeframe for an investment thesis like earnings compounding or value unlocking to play out. In our opinion, earnings forecasts beyond 2 years will be less reliable even though we may have a subjective opinion on the business outlook beyond 1-2 years. We try and use DCF valuations wherever possible, where we do implicit forecasting beyond 2 years. Considering that markets will discount forward earnings, we believe 1 year timeframe will be optimal. On rolling basis, we keep monitoring the stock fundamentals and we review our investment case on ongoing basis and reviewed at least once in a quarter.

5. What are the upcoming sectors you are betting on and why? How big the Amrit kaal is going to be for these sectors?

Ans: We have been positive on many domestic-oriented businesses. Clearly, domestic growth remains more resilient than global growth and earnings visibility in such sectors appears much better.

Some of the sectors and themes we have been positive on include the following:

• Infrastructure (including defence), manufacturing and capital goods. Capital goods as a sector which could be beneficiary of global manufacturing outsourcing to India and Aatmanirbhar India. We see this as a multiyear growth story.

• Auto OEMs are play on aspirational India and rise in per capital income enabling higher per capita consumption.

• Home building and building materials (including cement) sector to benefit from the growing need for housing and better quality of living.

• Private banking and financial services to be beneficiaries of financialisation of savings

6. what advice would you provide to a young, inexperienced investor? What kind of asset allocation should they have & exposures by categories?

Ans: My mantra to the young investor would be four fold:

a) start investing early – time in the market is better than timing the market. SIP into mutual funds is a great way to start the investment journey

b) be disciplined and systematic in your approach especially in times of market volatility.

c) do your research well – there is no substitute for research in investing

d) If in doubt of the appropriate asset allocation, chose a multi asset allocation strategy which leaves the asset allocation decision to the professional fund manager

Mr. Abhishek Bisen

Senior Vice President - Kotak Mutual Fund

Mr. Abhishek Bisen has done BA Management, MBA Finance. He has been associated with the company since October 2006 and his key responsibilities include fund management of debt schemes. Prior to joining Kotak AMC, Abhishek was working with Securities Trading Corporation Of India Ltd. where he was looking at Sales & Trading of Fixed Income Products apart from doing Portfolio Advisory. His earlier assignments also include 2 years of merchant banking experience with a leading merchant banking firm.

1. CPI inflation hitting 7.44% in July 2023 is higher than RBI’s tolerance band of 6%. The next monetary policy review is due on October 6, 2023. Are you expecting another hike in interest rates or a status quo will be maintained?

The above inflation numbers are outdated as latest CPI number for September 2023 stood at 5.02%, as compared with 6.83% in Aug 2023. Headline Inflation has trended lower primarily because of correction in vegetable prices.

Also, in its last monetary policy, RBI paused for 4th time in a row, kept the repo rate unchanged at 6.50% and maintained stance as "withdrawal of accommodation". The RBI has kept its FY24 CPI inflation forecast unchanged at 5.4% while flagging risks from food inflation. Also, the RBI has reiterated that it remains highly focused on anchoring inflation to align to its target of 4% on a durable basis and not in the range of 2-6%. But, looking at inflation expectations and recent commentary of MPC members, we don’t expect another hike in interest rates. And any pivot, i.e. rate cut is likely to happen only in later part of 2024, and mostly only after the US FED decision to cut rates.

2. What are the things you look for as an investor before investing in debt funds?

An investor needs to mainly analyze two things before investing in a debt fund – credit and duration. The duration is chosen as per the investor’s investment time horizon and interest rates scenario, while credit depends upon the risk an investor is willing to take.

Ignoring the short-term volatility, the investors should invest in debt funds which are suitable to their investment time horizon. And then should select funds as per investor’s risk appetite.

Credit owned strategy gives higher accruals to the investor and hence investor looking to earn higher accruals with degree of credit risk, can look at these funds.

3. After witnessing a net inflow of Rs 61,440 crore in July, debt-oriented mutual fund schemes saw a withdrawal of Rs 25,872 crore in August. What changed in one month?

As mentioned, Debt oriented mutual funds witnessed net inflow of Rs 61,440 crore in July and net outflow of Rs. 25,872 crore in August. The point to note here is that the large portfolio of debt funds is invested in less than 1-year category, such as overnight/ liquid/ money market / ultra-short / low duration funds. Also, the majority of the money in these category of debt funds is of institutional clients and treasury. The in and out of the funds by institutions and treasury keep happening depending on cash flow requirement of investor and other avenues of investment

Another point to note is that in September 2023 also, debt oriented funds saw net outflows of Rs. 101,512 crore. It was also the routine quarter-end redemptions by corporates to pay their advance tax liabilities. Hence there is nothing unusual or uncommon about these redemptions.

4. How are you currently positioned on duration front in your fixed income schemes? What advice you would give to an investor with a higher risk appetite?

Apart from risk from global uncertainties, domestically things seem stable. Over the last 1 year, FED has hiked rates by ~ 225 bps and RBI by ~ 60 bps. We expect FED/RBI to stay on hold during CY 2023 and cut rates in later part of CY2024. In near term yield curve might see the upward movement, but over the next 18 months, we expect yield curve to trend lower. Hence, we prefer longer end of the yield curve and have increased duration in our actively managed duration funds and as yields may inch up further we may look to increase duration further over period of time. Investors can reduce reinvestment risk by investing in higher duration funds. Given the forward guidance and expectation of cuts is potential for capital gains over next 18m in debt products investors shall look to increase duration of the investment pirtfolio as much as they can or consider actively managed duation funds.

5. What elimination criteria do you utilise as a fund house when choosing a debt security for a portfolio?

Portfolio construction is done by fund manager depending upon the respective scheme mandate i.e. its investment objective in terms of duration and credit risk.

There is detailed due diligence process for credit analysis for each company and each credit is subject to approval by the investment committee (IC). There are also investment committee approved limits in place for each company. The fund manager can invest in debt securities of IC approved companies only and that too within approved limits. This prevents any kind of unnecessary credit risk.

Then depending upon the scheme duration mandate, interest rate scenario/outlook domestically as well as considering impact of global interest rate scenario on domestic rates, the fund manager takes the duration call.

6. Debt investments are subjected to downgrade risk? How do you manage this risk in the portfolio?

As a fund house, we endeavor to select issuers / instruments which have low probability of any downgrade. But there can be an event-based downgrade in the medium-term horizon.

It is mitigated by various ways. One of them is diversification in the portfolio both security and sector wise, which can reduce the risk from downgrade in any particular security or negative view on any sector.

There are also certain checks and balances both internal and regulatory to manage the risk. Some of them are – there is rating-wise % of AUM of scheme can be invested in any issuer, periodic stress testing of schemes for credit risk, liquidity risk & interest rate risk, etc.