You manage a large cap fund (SBI Bluechip Fund) and mid cap scheme (SBI Magnum Midcap Fund). Large cap and mid cap universe have acted totally differently in the last few years. How did you tackle the tricky situation?
Although the returns in both the categories vary from year to year, the catch up happens over a period of time. So, if one looks at the 2-year or 4-year period, the returns in both the categories are similar, however, the picture looks very different in 1-year or 3-year period. In the long term, say over 10 years, midcaps would deliver higher returns over large caps, but the volatility in the intermittent period would be high in case of midcap stocks. As a fund manager, we invest in the best stocks in each of the categories as per the defined asset allocation and investment universe for each fund and we have a long-term outlook when we invest in any stocks.
We are at the end of an unusual year which saw a global shutdown, something we have never witnessed before. What is your outlook for the next year?
Outlook for the next year is still hazy as the world is looking at another round of pick up in cases during the upcoming winter period. One would have to see how strong this wave is in terms of number of fresh cases. The difference is that the world is now much more prepared to handle the situation in a much better way versus a year ago, due to experience gained in the last one year. Hence, the possibility of handling it without a significant damage to human life and economic activity is much better today. So, from a growth perspective, we should see a much better year in 2021 versus 2020.
There are still a lot of uncertainties around the global economy and growth. What is your advice to our readers? How should they proceed?
While the uncertainties are likely to prevail, directionally we should see a positive growth in the next year from the low base of the current year. The extent of recovery would remain uncertain though. The governments and the central banks have pumped in a lot of money across the globe to revive growth. The low interest rate regime and ample liquidity conditions are conducive to kick start a fresh investment cycle which can become a driver of growth.
While the investors have to be cautious of the situation deteriorating again, they would also need to weigh the possibility of growth revival. Markets are likely to be volatile and can swing in either direction, depending upon how the situation pans out. Investors should break their investments decisions and invest gradually during sharp corrections to make long term gains. They should also diversify their investments across asset classes to mitigate risks associated with investing in only one asset class.
The market is hovering around all-time high, but mutual fund investors are still concerned about its prospects because of the bleak economic scenario and the pandemic. How would you like to explain the market and it’s disconnect with the economy to these investors?
As we are coming out of the pandemic, the market is factoring in the revival in growth in the coming year as the economy opens up from the lockdown situation. The government has been announcing many measures to revive the manufacturing sector growth. For example, PLI schemes in various sectors which can kick start investment cycles in India. With good monsoons and sufficient reservoir level, the outlook for agriculture and hence rural economy looks good. These coupled with low interest rates, comfortable liquidity conditions and portfolio investments by FIIs have driven the markets higher.
Most fund managers and investors have been rueing the so-called narrow rally in the market for the last two years or so. Though key indices have made gains most schemes didn’t benefit. What is your view?
The rally in the market becomes narrow when the overall economy is not doing very well and only few companies or businesses do well overcoming such economic conditions. However, as growth becomes more broad-based, the market rally also broadens and active funds managers do well on account of better stock selection. Also, when large sums of money are invested in the market by passive investors, the stocks with large weight in the benchmark attract the maximum investments and their valuations are rerated further. However, as the economy starts to catch up on growth, more active investors come to participate to gain from growth recovery and hence market reruns become broad based.
SBI Bluechip Fund has lost some of its glory in the last few years. Though the performance was marginally better in 2019, It had a very bad year in 2018. It lagged its benchmark and category even in 2017. What happened?
Yes, the fund underperformed significantly to its benchmark and peers during the two-year period between CY17 and CY18. The fund was positioned for the economic recovery, however the economic growth slowed down meaningfully. The rally in the market was concentrated in few stocks where the fund was underweight which resulted in the underperformance. Especially our underweight stance on Energy, IT and Staples sectors affected the performance meaningfully during this period. However, during the last two years, the fund has outperformed the benchmark again led by superior stock selection and has also improved its performance against its peers.
SBI Magnum Midcap Fund had two bad years along with other mid cap schemes. However, the scheme has been struggling since 2016 to keep pace with the benchmark and category. How do you view the performance of the scheme?
The midcap indices rallied significantly in the four-year period of Dec’13 to Dec’17 generating a return of 27% CAGR and have consolidated since then till date. Hence, no returns for the last 3 years. The fund delivered 29% CAGR during Dec’13 to Dec’17 and flat returns during the last 3 years. Thus, consolidation after euphoria has been the phenomenon of the fund and the category during the last 3 years. However, during the last two years the fund has outperformed the benchmark and has significantly improved its performance versus peers too.
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