Soumendra Nath Lahiri is a fund manager at DSPML Fund Managers. He joined DSP Merrill Lynch in June 2004 as part of the equities fund management team. In this extract from an interview that appeared in Mutual Fund Insight, he shares his views on the stock market and offers some important tips for advisors.
His advice to investors
Deciding how, when and where to invest one's hard earned money involves much more than watching the market on a daily basis.
An individual should carefully draw out a systematic financial plan based on one's unique circumstances, ability to invest, risk appetite, financial goals and investment horizon. Once you have a clear idea of your financial position, you can determine an appropriate asset allocation mix that will help you achieve your financial goals.
Although, historically, equities are likely to outperform other asset classes in the medium to long-term, individuals sometimes shy away from equity investing because of concerns about timing and the reliability of returns.
The key is to choose your investments wisely, chart out an investment plan and adhere to it over the pre-defined investment horizon.
An easy solution is to invest into mutual fund schemes through a Systematic Investment Plan. Mutual funds offer you a well-diversified, professionally managed portfolio at a low cost. Systematic investment is perhaps the simplest and yet most sophisticated way to avoid timing the market, while ensuring reasonably good returns through rupee cost averaging (by investing fixed amounts every month, you buy some units at a higher rate and others at a lower rate. As a result, over time, the cost averages out and you get a better return on your investment) and the power of compounding.
By investing for the long term, such investors are also able to extract the full benefit of the power of compounding, since their investment is likely increase on a compounded basis the longer they stay invested.
On the two funds he is managing
DSPML Opportunities Fund was launched in March-April 2000. It has a dynamic streak to it; the idea is to take bold sectoral bets. So the fund takes aggressive bets on sectors and stocks (this means huge amounts from the portfolio will be invested in fixed sectors and stocks).
The fund is managed with an objective to adapt to the changing market trends. It is easily able to switch between stocks and sectors in order to take advantage of the appropriate market themes and uptrends in certain sectors.
The fund has grown from about Rs 50 crore (Rs 500 million) in May-June 2002 to over Rs 1,000 crore (Rs 10 billion) today.
DSPML India T.I.G.E.R. Fund's objective is to generate capital appreciation (rise in value of your initial investment) by investing in sectors which could benefit from structural changes brought about by liberalisation and/ or from continuing investments in infrastructure.
Economic reforms and infrastructure development are likely to be among the key catalysts for economic growth in the medium term. The growing service sector and higher infrastructure investment is likely to sustain higher growth.
On the future of the stock market
Fundamentals in India continue to remain strong. Growth drivers for the economy continue to remain intact. For FY 2007, GDP growth should come at 7.50% while corporate earnings should grow at 20%. Against this backdrop, the Sensex is currently trading at a PE ratio of approximately 17.
We do not anticipate any slowdown in economic growth since all investment themes that contribute to growth (domestic consumption, infrastructure development, outsourcing) continue to play out strongly. We remain bullish on Indian equities and anticipate a 15% compounded annual return over a three to five year investment horizon.
Which sectors make good buys now
The three big investment themes over the next few years will be domestic consumption, infrastructure development and outsourcing.
There will be many sectors that benefit from these themes, such as construction, engineering, capital goods and banking.
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