Naveen Chandramohan is the Founder & Fund Manager at ITUS Capital.
Naveen Chandramohan, the Founder and Fund Manager at ITUS Capital, hopes the rationalisation of GST rates will happen but believe that this is going to take more time than in the coming year.
There has been a buzz that the government may hike FPI investment limit in PSU banks. “I would rather focus on how to drive efficiency in the balance sheets. There is sufficient capital domestically to support the PSU banks if the return on capital of the banks improve. It would be a better endeavour to focus on this, rather than increasing the FPI limits,” says the ace financial services professional having worked across fund management, fund raising and fundamental research in an interview with Moneycontrol. Excerpts from the interaction:
What’s your view on IT biggies after their December quarter earnings?
At ITUS, we have significant exposure to IT and tech for more than two years now. The December quarter earnings are a reflection of the broader trends that are happening globally – industries are going through digitisation and this trend is here to stay, as tech is an integral part of any business today.
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I would urge investors to look at these trends from a multi-year perspective, rather than to change their views depending on quarterly earnings. When Infosys is winning its largest contracts (in size), since its inception, it tells you the trends we are in today. The December earnings is just a validation of that.
The Union Budget is just days away. What are the sectors going to attract maximum attention of the finance minister?
I look at the Budget as an event, where the finance minister lays out the plan. The execution happens during the interim which, according to me, has been the most important. As we head into the Union Budget, the focus areas of the government has become fairly clear – to spend public capex on infrastructure and roads, create a manufacturing hub in India for multiple industries (think the PLI Schemes) and to drive growth on the ground.
Any additional focus on driving the demand side for real estate and standardising GST and SOPs for driving rural growth will be an icing on the cake.
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Do you think the government will hike FPI limit in PSU banks in Union Budget?
To be honest, I am not sure what this will achieve. Capital moves to areas of efficiency and returns. Rather than hiking the FPI limit (if that’s the idea), I would rather focus on how to drive efficiency in the balance sheets. There is sufficient capital domestically to support the PSU banks if the return on capital of the banks improve. Fundamentally, that’s been the challenge and it would be a better endeavour to focus on this, rather than increasing the FPI limits.
The market has been on record high levels, especially amid earnings season. Do you expect the benchmark indices to hit fresh highs around the Union Budget?
It’s important to repeat the obvious here. The markets will continue to react to earnings growth. We are in the early stages of a growth recovery cycle across sectors and you should see individual companies react accordingly. Different sectors and businesses are going to show different growth rates, and focussing on the micro would be more important from here than worrying about the overall market.
I continue to expect 2022 to be a year where the returns on good cash-flow growth portfolios will generate a healthy return.
Will the RBI announce reverse repo rate hike in the forthcoming policy meeting, especially after the Union Budget?
I have looked at the 50-50 events. These are not worth worrying much. As an investor, I would bet on the fact that they would hike the reverse repo rate sometime in 2022. Once you have a broad view that, this is happening, whether it is in the Union Budget meeting or one or two meetings during the course of the year, it should not affect the broad thesis of investors.
Do you think the government will rationalise GST rates across various products and industries in the Union Budget?
This is again a part of my wishlist. If you look at history of developed and developing countries, the former have a unified and simple taxation system – both at GST and retail level. If we have to move on the path of growth, this is an area we need to focus on – to simplify taxation. I do hope that the rationalisation happens but I do believe that this is going to take more time than in the coming year.
Investors pumped Rs 24,990 crore into equity schemes and SIP contribution jumped to Rs 11,305 crore in December 2021. Do you think the flow could remain strong in 2022 as well?
The trend of domestic inflows into the markets is up and I believe this will continue to be the case. We are bound to see higher monthly volatility in flows, but the broad trend is going to be up.
Will the known factors like Fed policy tightening and rate hikes, inflation and COVID create volatility in the market this year?
I have believed that there are two factors of risk – known unknowns (the ones we discuss on a day-to-day basis like the ones you have asked in the question above) and unknown unknowns (the ones we do not talk about today). It’s always the latter that creates volatility. The former, are aspects the markets have an uncanny ability to price – these are things we expect to happen in the year – these will create volatility but will not create uncertainty. The market is a weighing machine that learns to look beyond these.
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