We have increased allocation to defensives: Ravi Gopalakrishnan

Q&A with head - equities, Canara Robeco Mutual Fund

Ravi Gopalakrishnan, head – equities at Canara Robeco Mutual Fund shares his views with Aastha Agnihotri on the global economic slowdown and the outlook for the Indian economy. He expects the Indian equity markets to trade in a range, as the foreign institutional investor (FII) flows take a breather in the near-term. Edited excerpts:

What’s your equity market outlook in the near-to-medium term? Do you see more downside risk or can the market regain some lost ground?

Given the macro-economic headwinds, the markets are likely to remain in a range in the near-term. At the same time, given the recent correction, the downside seems limited as valuations at 13.5x FY14e earnings are fairly supportive. Going ahead, the market direction will be dependent on pace of the economic reforms and the recovery in the investment demand.

Do you think Indian economic scenario will improve in 2013 and also get a bit of a tailwind from the global economic cycle?

If the reforms momentum continues to gain traction and the macro data points improve from here on, there is a case for the markets to move up. Most central banks around the world are continuing to follow an easy liquidity policy, which is positive for most asset classes including equities. However, given the current macro head winds in India, markets are likely to remain in a range in the near-term.

How do you see the FII flows panning out going ahead?

After seeing significant flows in the past few months, FII flows seems to be taking a breather now given the sharp run up in the markets. Further, any development like the one seen in Cyprus can cause risk aversion in the mind of the investors and could impact the flows towards the emerging markets.

Did the recent small- and mid-cap carnage impact your portfolio?

Mid-caps / Small-caps are relatively more volatile as compared to large caps. They also have a relatively higher risk/return profile. It is very difficult to generalise the movement of these stocks given the fact that most mid-cap stocks have gone up a lot in the past few months and are now correcting. Our investment philosophy and the strict risk control measures ensure that we buy only high quality companies in our portfolios and hence the impact has been limited.

To which sectors do you have maximum exposure?

Given the run-up in the markets over the past few months, we have rebalanced our portfolios towards defensives. We have increased our exposure to information technology (IT) and pharmaceuticals given their strong growth prospects. In addition, any further depreciation in the Rupee is likely to benefit these sectors. Thus, these two being export driven sectors appear a good space to be in. Overall, we believe there is possibility of divergence of performance within sectors and stock selection will be the key to performance.