With the macroeconomic concerns holding sway over the last year, fund managers Sankaran Naren and Mittul Kalawadia put their fai th on a top-down approach to investing in the markets. The schemes managed by the duo handsomely beat the CNX Nifty Index. While the benchmark index returned just 0.56 per cent for the year ended September 30, the Dynamic Plan and the Top 100 Fund gave absolute returns of over 5 per cent each. The two fund managers combined well to get their investment strategies right. While Naren, who is the CIO of ICICI Prudential Mutual Fund, looks at the big picture, his co-fund manager Kalawadia zeroes in on specific stocks within the chosen sectors that are available at attractive valuations.
The view adopted by the fund managers over the last year was on account of an expanding current account deficit (CAD) and huge trade deficit. Moreover, till August 2012, oil subsidies too were going up. "The call given in this scenario was to be overweight on export-oriented sectors such as pharmaceuticals and IT," says Naren. A key differentiator which helped outperform was the call to be careful with investments in the financials space. "Our past experience shows (global examples such as Spain), as the CAD expands, financials tend to underperform. We had been underweight in financials for the last couple of years because of this worry," he adds.testing.. we are here....
Another area that helped them score over competition was the energy and materials space. The fund managers saw it as import substitute sectors rather than one controlled by China. Stocks like NMDC and Cairn India were earning in dollars and weak rupee helped them get better returns. The thrust thus was on dollar earners as well as dollar savers. Continuing on the theme of higher CAD and a weak rupee, they looked at midcap names in the textiles and shipping space. The company took exposure to GE Shipping given that it had dollar assets and dollar was growing stronger. The focus thus was more on global companies such as Tata Communications, Standard Chartered and Motherson Sumi. While the top-down analysis gives the overall picture, given the tough economic situation, the fund house avoided companies which were not financially strong especially the leveraged infrastructure plays. "You look at companies which have robust balance sheets and are cash rich," says Kalawadia.
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