Mr. Anand Radhakrishnan
Designation: CIO – India Equity
Mr. Anand Radhakrishnan is Chief Investment Officer (Franklin Equity - India) for Franklin Templeton Asset Management (India) Pvt Ltd. Mr. Radhakrishnan is responsible for overseeing all the local equity funds. His responsibility includes mentoring all the portfolio managers apart from continuing to be the Portfolio Manager for some of the key products. He manages Franklin India Bluechip Fund, Franklin India Prima Plus and Franklin India Technologies Fund. Also he is co-portfolio manager for Franklin India High Growth Companies Fund and Franklin India Build India Fund.
Mr. Radhakrishnan has been in the investment management industry since 1994. He started his career with FT in 2004. His past assignments include Fund Manager, with Sundaram Mutual Fund for 8 years; Deputy Manager, Equity Research with SBI Funds Management Ltd.
Mr. Radhakrishnan earned his Post Graduate Diploma in Management from Indian Institute of Management, Ahmedabad in 1994. He earned his Bachelor of Technology degree, specializing in Chemical Engineering from Anna University, Chennai in 1990. He is a CFA charter holder.
1) What is your assessment of the FY18 Q4 results so far? Do you see any visible trend in corporate earnings?
Answer: FY18 earnings are expected to come in stronger, primarily attributable to growth in H2FY18 as effects of macroeconomic disruptions and policy changes in multiple sectors settle. Steps taken thus far towards NPA resolution in the banking sector should yield marginal improvement in earnings in the coming quarters. Projection of normal monsoon bodes well for Q1FY19 earnings though the spatial and temporal distribution will be watched. Revival in consumption demand and a nascent industrial capex recovery should further support earnings growth in FY19. The 4QFY18 results are estimated to be robust in terms of net sales and profit growth for (i) auto and FMCG (on consumption demand), (ii) capital goods, cement and infrastructure (on recovery in private capex) (iii) metals and power (on strong global commodity prices/ demand). While asset quality slippages may show signs of improvement, upgradations are still not yet meaningful, that may suppress the banking sector earnings. Information technology and healthcare are expected to post marginally positive results, though telecom could see a muted quarter. In terms of earnings recovery, auto, retail and technology sectors will likely lead the list, supported by improving demand and low base effect.
2) What is your assessment of the current valuations prevalent in the market? Do you see any pockets of valuation opportunity for investors?
Answer: While the current equity valuations hover above long term average, a recovery in corporate earnings growth and GDP growth momentum for India remain strong. Pockets of overvaluation exist and so do select opportunities for long term investments. The profitability trend in equities has steadily improved from FY2016 to FY2018 and is likely to sustain momentum as indicated by Bloomberg consensus estimate growth for FY19 EPS of Sensex at 27.7%. This uptick in growth estimate may be attributed to improving productivity brought about by policy reforms (GST, financial sector reforms, etc.). India’s relative resilience to global trade conflicts bodes well for sustaining growth momentum. In addition, valuation has to be also assessed considering the interest rate cycle that has started to rise.
3) Kindly brief us on the current NPA situation in the banking sector. How are the public and private sector banks dealing with same?
Overall, the NPA situation is being tackled aggressively through corrective actions and preventive policies being reinforced. Policy actions include early NPA recognition through stringent bad loan recognition norms, stressed asset resolution under Insolvency and Bankruptcy Code and higher provisioning norm. These measures bode well to confront the problem of NPA at all stages - identification, resolution and prevention of future NPA build-up. At present the NPA issue seems more worrisome for public sector banks which account for nearly 89% of total NPAs in the banking system. However, with higher provisioning and focus on asset quality, the PSU banks are making a gradual turnaround. On the other hand, private banks show an improvement in asset quality and have posted encouraging loan growth in Q4FY18. Factors including the stressed asset recognition/ provisioning under RBI’s revised asset quality framework and incremental provisioning for frauds uncovered in various banks could have a bearing on the future earnings for the sector. That said, a new set of enabling provisions under the revised prompt corrective actions (PCA) framework and talks of innovative ways to ease loan burden of lenders are expected to augur well for banks.
4) The IMF has projected a healthy 7.4% growth for the economy this year and 7.8% the next. How do you think is the economy positioned today and what are the key risks it faces?
Answer: Domestically speaking, major themes that are expected to support a surge in growth include recovery in rural economy, overall improvement in consumption demand and industrial capex recovery. Pick-up in demand as indicated by consumer durable production, auto sales, air traffic, personal loan offtake, etc., could in turn improve capacity utilization levels. Investment-led growth as denoted by capital goods imports, cement production, growth in rail cargo and private projects under implementation indicates build-up of a sustainable strength at micro level in the economy, despite weakness in the macroeconomic gauges. Among the risks, widening of trade deficit due to slower export momentum, increase in fiscal deficit, hardening of core inflation and domestic currency depreciation pose risk to growth. The government spending has moderated, having breached the fiscal deficit target in FY18. This may in turn lower the contribution of government spending to real GDP going forward. However, consumption demand and private capex recovery should support growth. The 2019 election will be a major event impacting risk sentiments for domestic equities.
5) What has been your fund house strategy for investments in the current markets? How would you differentiate your process from others?
Answer: We follow a steady process of bottom-up approach to stock-picking considering the long term fundamentals of the stock and crucial developments in the company and sector. While broad analysis of economy and various sectors is a starting point, the stress is on a deeper search for businesses and managements creating wealth, some of which could even be in out-of-favour sectors. In our view, our focus on the long term ensures that our research is not biased by short-term cyclical considerations and allows us to take advantage of short-term price volatility in making strategic investment decisions. This approach allows us to focus on superior stock selection, stick to the fund’s investment mandate and to continue with the style of investment management without being swayed by momentum style of investing.
6) What would be your advice to an investor looking for an equity exposure at present levels?
Answer: Improving health of the micro indicators in the economy offers a stable base for long term positive growth trend despite the current valuation levels and weak trend in macroeconomic indicators. Indian market continues to remain reasonably resilient to global market headwinds. From an investment perspective, diversified equity funds with core exposure to large caps and prudent risk-taking in mid/small-cap space may position the investor favorably well to capture medium to long term opportunity presented by the equity markets. Some volatility is likely to persist in 2018 and we suggest that investors may chalk out a suitable investment strategy, enter the market in a staggered fashion and stay invested for the long term so as to tide interim volatility.
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