The proposal to increase the minimum public shareholding in the Budget is looked as a dampener in the near term for the equity market, according to Vinay Paharia, Chief Investment Officer, Union Mutual Fund.
In a candid interview with Moneycontrol, Paharia said: "The new norm is a near-term dampener as the market is worried about the deluge of supply. The critical element now is how much time is allowed to promoters to reduce their shareholding to the revised limit."
However, in the long term, he believes this norm will result in increased free float, which in turn can increase India's weight in international equity benchmarks.
On July 8, the Sensex was caught in a bear trap after Budget 2019 proposed to raise minimum public shareholding to 35 percent from 25 percent earlier.
The BSE Sensex fell 792.82 points or 2.01 percent to 38,720.57, while Nifty50 plunged 247.20 points or 2.09 percent to 11,564.
When asked if the fund house capitalised on the market fall to bottom-fish, Paharia said: "We do not believe in timing the markets. Hence in our equity funds, our endeavor is to remain fully invested in markets at all times."
Overall, Paharia believes that the budget conveyed the government's message of staying the course of fiscal prudence in a tough economic environment.
Paharia, who joined Union Mutual Fund in April 2018, manages Union Equity Fund.
As on March-end, 2019, the total AUM of the fund house stood at Rs 4,259 crore, up 1.21 percent from December quarter.
Market Outlook
The fund houses promoted by Union Bank of India is 'cautiously optimistic' on the equity markets. According to Paharia, the biggest tailwinds for them to be optimistic for Indian equities are a reversal in US Fed's and ECB's stance from quantitative tightening to quantitative easing, accommodative monetary policy in India, stable government with a strong mandate for the next five years.
However, they are cautious due to slowing economic growth in India and developed countries, and premium valuations.
Speaking about valuation on midcap and small companies, Paharia said underlined companies have significantly corrected from a high base in the last one year, both on an absolute and relative basis.
However, he feels, the valuations are still not available at bargain levels.
Hence, while the fund house has incrementally increased their weightage in small and mid-cap space, their portfolios are still well balanced across capitalisations.
In terms of global events, Paharia said investors must focus on actions of developed world central banks and developments regarding the trade policies.
Locally, investors will look forward to quarterly results to gauge the health of the economy and the pace of recovery.
Also, a healthy monsoon season is critical for the health of rural India, which is a key monitor.
On the question of how India is placed among emerging market peers, the chief investment officer feels India is a strong investment destination among its emerging market peers due to its strong growth potential and a superior return on capital generated by Indian companies.
Sectors
In terms of sectors, the fund house is running an overweight position in industrials as they expect a revival in investment demand in the medium term and on consumer discretionary due the superior long term growth prospects and attractive valuations.
Union Mutual Fund is underweight on the material sector due to poor sustainable return on capital generated by companies and consumer staples sector due to valuation reasons.
On cash levels in the fund house’s equity funds, Paharia said: "Our endeavor in equity funds is to remain fully invested in markets at all times."
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