| HDFC Equity has been in the first quartile of its category for the fourth consecutive year. What are the factors behind this performance?
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| The consistent performance of the fund is a result of a number of factors, including consistent focus on quality of companies in the portfolio, focus on long-term prospects of investments, limited focus on short term, reasonable diversification in portfolio at all points of time and the skill of individuals in the investment team that has managed the fund. It will be our endeavour to continue to deliver a reasonable performance in the future.
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| Given the sterling performance of metals recently, how does the fund view the removal of Nalco and Tisco from its portfolio?
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| Investment decisions are made with the medium- to long-term perspective. In my opinion, these stocks are trading at a significant premium to replacement cost which is unlikely to sustain over a longer term.
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| Further, it is inappropriate, in my opinion, to value such companies based by P/E multiples alone, particularly when commodity prices are very high.
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| What is your outlook for the equity markets?
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| With a rally continuing over the last six months, the markets appear to be fairly valued. Returns in future will be closely associated with growth in earnings as scope for across the board P/E re-rating is limited.
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| As the growth outlook for the economy and corporate profits is good, markets should deliver reasonable returns over the medium to long term.
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| What is also relevant is that there is no evidence of gross overvaluation in any sector in my opinion, which limits the risk in these markets. |
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