Mr. Anand Radhakrishnan, CFA
Chief Investment Officer (Franklin Equity - India)
Franklin Templeton Asset Management (India) Pvt Ltd.
Anand Radhakrishnan is chief investment officer for Franklin Equity - India, 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 and also acting as portfolio manager for some key products. He manages Franklin India Bluechip Fund, Franklin India Prima Plus, and Franklin India Taxshield, Franklin India Infotech Fund, and equity portfolio of all hybrid funds.
Mr. Radhakrishnan has been in the investment management industry since 1994. His past assignments include 8 years as fund manager for Sundaram Mutual Fund. He was also deputy manager in equity research with SBI Funds Management Ltd.
Mr. Radhakrishnan holds a postgraduate diploma in management from Indian Institute of Management, Ahmedabad, and a bachelor of technology degree with a specialization in chemical engineering from Anna University, Chennai. He is a Chartered Financial Analyst (CFA) charterholder.
Q. What is your assessment of the economic outlook - both for the domestic and the global economy?
Answer: From a long-term perspective, we have a positive view on Indian equities. Fundamentals including under-penetration, formalization of the economy, a stable government, low inflation, and solid FX reserves remain intact. We expect a recovery in growth going forward.
Most agencies like RBI, World Bank, Asian Development Bank, Moody’s have cut growth estimates for India in view of the current slowdown. Several efforts have been made by both RBI and the government to help revive the growth. The central bank has reduced rates five times (135bps) this year and market is expecting another rate cut in December monetary policy. The government has taken several policy actions and provided stimulus to troubled sectors. Further reforms like disinvestments/privatization, land and labour reforms, tax cuts in income tax rates/DDT/LTCG, etc. are expected in the coming months.
Q. The equity markets had a small rally in past few weeks from the recent lows. In the mid-caps and the small-caps space, are the markets fairly priced?
Answer: Small and mid-caps are now as attractive or unattractive as any other cap. We do not focus excessively on cap-based investing. There is as much uncertainty in large- or giant caps as well. With this correction, mid-caps are at relatively lower risks. The performances of mid- and multi-cap funds have more or less converged. The best way to play a rally now would be a multi-cap or a large & mid-cap fund. If someone is keen on mid-caps, they are today probably less risky than they were, say, a couple of years back.
Q. What should be nominal GDP growth assumptions be henceforth? What would you call as fair return expectations from equities over say 10 year and more?
Answer: As discussed in the first answer, we expect policy reforms by the government which would support growth. Apart from those discussed we see additional positives like bank books clean up, jump in ease of doing business rank through process reforms, and constructive disruption in various sectors which could lead to a shift from unorganised sectors to organised sector. Although the economy is going through a slowdown, the long-term story is intact, and we expect a stronger growth ahead.
Equity continues to be a riskier asset class with potential to generate inflation beating returns in the long term. From an investment perspective, diversified equity funds with core exposure to large caps and prudent risk-taking in mid/small-cap space may be well positioned to capture medium to long term opportunity presented by the equity markets.
Q. Going forward which industries or sectors do you feel offer the best opportunities today and why?
Answer: We are primarily bottom-up stock pickers and each fund will have different exposure with respect to sector allocation. Broadly speaking we are overweight on select private banks, chemicals, and engineering companies and have been underweight consumer sector.
Q. What is your opinion on the active vs. passive investing in India? What would be your reasons for choosing active funds over passive ones?
Answer: Globally, active fund managers have had long periods of underperformance. You can either go by periods or cycles. If an active fund manager underperforms across multiple cycles, then you should be worried. In a cycle framework, the last three years can be viewed as a single year. In a single year, markets and fund managers may have generated 30 per cent returns. You should measure active fund managers based on quantum of returns and cycles and not necessarily periods. Select stocks from banking & finance, consumer staples, IT companies have become bigger and bigger. Their stock valuations have also became expensive both on absolute and on relative basis. So, the entire index’s returns were delivered by fewer and fewer stocks. This level of concentrated market is not what an active manager bets on. An active manager bets on some churn or rotation in sectors with growth moving from one segment to another.
Your choice to go passive should be based on the view of whether the trend of narrow growth – large stocks becoming larger and expensive, smaller stocks becoming smaller with falling valuations would last for long.
Q. What would be your advice to existing but new investor who is yet to see good returns from his portfolio?
Answer: It is quite understandable to feel a bit nervous when one is investing in volatile times. Currently the news-flow and sentiment are generally negative. The important point to remember for the investor is to invest regularly and choose your investments depending on your time horizon, goals and risk tolerance. Typically, it is better invest regularly for longer time horizon.
This is a common investor psychology to chase the next winner. Everybody expects their scheme to be the best performing scheme. However, it is impossible to predict the future. Our advice to the investors would be to focus on the process, principles and team of the asset managers. It is these fundamentals that helps the funds perform across market cycles. We at Franklin India follow an investment strategy which is bottom-up, research based, and dynamic ‘blend’ of growth and value. The goal is to produce superior long term, risk adjusted returns over a full market cycle. Our investment process can be broadly classified into 5 steps- Idea generation, business analysis, stock recommendation, portfolio construction and portfolio risk management.