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On a High!
By Mahesh Nayak
Edition:May 7, 2017
On a High!

On April 13, 2017, Sandeep Nayak, Chief Executive and Executive Director at Centrum Broking, was wrapping up his work before partying with his team ahead of the long weekend. The reason: The firms wealth management arm had recorded the highest ever sales for the month of March (2017), the first time since 2011, when the company started the wealth management business. Today it manages assets over Rs10,000 crore.

"Thanks to the buoyancy in the equity market, we have been able to amass highest-ever assets under management (AUM) in a single month," says Nayak, who realises that investors do not have any other avenue to invest except in equities. With real estate and commodities going through a slump, and post-tax returns of bank fixed deposits being around 5 per cent, players are looking at the equity market to give them a decent return.

For Nayak, the irony is that the stock he sold (and booked profits) has surged further and none of them has corrected since he sold them. So the big question is: Where should one invest after booking profits? Any quality stock is costly and isn't correcting. And no one wants to sell.

Everyone agrees that the market today is not cheap. But strong liquidity, especially from domestic players, also means the market is not too worried about profit booking. In fact, the players are getting a suitable opportunity to accumulate in case of a correction. This is precisely the reason that the market, post a brief correction after hitting an all-time high, is back to the same levels within the span of a week. Says Nayak, "Certainly, this market is not for fresh investments. One should wait for the market to correct before entering, but all eyes are now on the results, more so on the future guidance by companies and the monsoon. If both meet market expectations, it will further boost the rally."

Nayak is not the only one who is partying. Prateek Agrawal, Chief Investment Officer (CIO) and Head, Business, at ASK Investment Managers, has also planned to go out to lunch with his team on April 14. After all, the AUM crossed Rs10,500 crore in March 2017 compared to Rs6,500 crore in March 2016. The fund has also beat the index by over 6 per cent. In just one year, the fund returned 25 per cent compared to the Nifty returns of 19 per cent. Also, in the third quarter ended December 2016, his portfolio registered an earnings per share (EPS) of Rs17 compared to Niftys Rs6.5.

"We have stuck to the consumption story and that has rewarded investors. In fact, the demonetisation has been a bit bad for our portfolio, which saw the Nifty surging higher. But our track record of generating more than the index has seen us garnering an average of over Rs200 crore a month for the past three years," says Agrawal. According to him, the money is flowing into Indian mutual funds, domestic institutions and portfolio management services (PMS) due to three reasons. First, alternate asset classes are not delivering the said returns; second, household savings are increasing; and third, investors are seeking the services of specialised managers rather than investing directly into equities.

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Agreeing with Agrawal, S Krishnakumar, CIO (Equity) at Sundaram Mutual Fund, who invests 80 to 90 per cent of his money in his own funds, says, "Our success in receiving flows from investors is there because irrespective of its returns, we have outperformed the index. There are laggards and there are outperformers. We focus on outperformers and those are growing steadily, which is why we, too, are doing well."

Can one get good returns even at these levels?

"It depends on where you are investing; not everything is doing well," says Agrawal of ASK. "Having said that, the domestic story is on a strong footing and, therefore, every correction should be taken as an opportunity to enter the market. The March quarter results are expected to be bad when compared to the December quarter, particularly for companies whose businesses are purely driven by domestic consumption. But this may throw open an opportunity to invest. Then again, globally, the interest rates will be on the rise. So, the foreign money flow into the market will remain subdued and foreign investors may even sell off India, thus playing a balancing act between the domestic and the overseas flows and restricting market valuation from stretched levels to get into euphoric levels."

The only concern is that players are moving out of large caps and are getting into mid-cap, small-cap or even micro-cap stocks, says Nayak of Centrum Broking. "With large caps, it is only valuation risk, but with others, one can lose capital by going completely wrong on the company, business and management. Having said that, if one gets the right pick, the rewards are also higher for high risk." But then, with domestic flows being strong and money managers being cautious, this party doesn't seem to be ending any time soon.

@MaheshNayak

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