Stock Markets: Managing Elections, Inflation and Other Risks

In this edition of the State of the economy In the Personal Finance podcast, Roshi Jain, Senior Fund Manager at HDFC Mutual Fund, talks to Aarati Krishnan about how investors can navigate the fast-moving stock market. Roshi currently manages over $5 billion in assets for one of India’s largest mutual funds, HDFC Mutual Fund. Roshi, a CA, CFA and IIM Ahmedabad graduate, has nearly two decades of experience in managing equity funds. Before joining HDFC MF, she worked for Franklin Templeton Mutual Fund and Goldman Sachs.

India and the world are witnessing a return of inflation, particularly in food crops, due to El Niño. In the long term, stocks are the only asset that can beat inflation. But can inflation hurt growth and earnings in the short term? When asked for her opinion on this, Roshi said it was difficult to say how long food inflation pressures could last. However, the government and the RBI worked on a two-pronged approach to curb inflation. Inflation can therefore have a short-term impact on consumer spending. However, it is possible to build a portfolio of companies that can tide over such temporary problems and whose stocks will beat inflation in the long term. So far nothing has caused them to change their long-term forecasts for the portfolio companies.

She was among the first fund managers to recognize the value of corporate bank stocks, particularly PSUs. After the recent rally in these stocks, is there a chance for further rise?

Roshi said select banks will continue to perform well due to their long-term competitive advantages and sustained economic growth itself represents a growth prospect for these banks. Bank balance sheets are well capitalized and demonstrate healthy asset quality. She believed valuations were still attractive given growth levers and competitive conditions. On the question of PSU versus private banks, she pointed out that ownership is just one dimension of the decision to select bank stocks and there are many others.

On revaluation of PSU stocks and whether structural changes warrant it, Roshi spoke of the need to consider both the business cycle and the prospects of individual companies when investing in PSUs. The economic cycle, which favors capital and infrastructure investments, works in favor of PSU stocks. So, instead of generalizing past performance and contrasting it with the future, we need to look at the PSUs on their own merits.

Typically, the stock markets in India become very volatile whenever general elections are approaching. As an equity fund manager, how does Roshi deal with such an event?

Roshi responds that she has a keen eye on the long-term prospects of her portfolio companies and views such events as opportunities to acquire positions in good companies. Stocks are a long-term instrument and we are long-term, fundamentally focused investors. I believe that as long as we remain disciplined in our investment philosophy and process, we should actually be able to take advantage of any short-term volatility to create long-term value for our investors. I think with this philosophy in mind, volatility actually becomes something we can exploit rather than be wary of.

Listen to the podcast now!

(Host: Aarati Krishnan, Producers: Anjana PV, Nabodita Ganguly)

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About the State of the Economy podcast

India’s economy has been hailed as a bright spot amid the general gloom that appears to have gripped the rest of the world. But some sectors continue to sputter while others appear to be running at full speed. To help you understand the bundle of contradictions that make up the country, business line brings you podcasts with experts from finance and marketing to technology and start-ups