Fund Manager Interviews

Gopal Agrawal

Mr. Gopal Agrawal

Fund Manager - Equity, HDFC Mutual Fund

1. The year began on a turbulent note amidst concerns over unfavorable global markets. What can be various aspects to look forward to staying invested in Indian equity markets for medium to long term?

Markets can be volatile in the short term, driven by various events. Investors are best placed to consider ignoring short term volatility and continue building portfolios towards long term goals. Having said that, we have observed that any fall in markets due to global reasons have been a buying opportunity for a long investor, and this current market seems to have validated that trend.

In the long run, markets are largely driven by earnings growth, which in turn is impacted by a host of factors, with GDP growth being a key contributor. Growth outlook for Indian economy is strong. Reforms and measures by the Govt. over the past few years have strengthened the same.

Other factors that investors today could keep in mind are 1) valuations of Indian equities being lower from recent highs on account of rising earnings, 2) Recovery of the private capex cycle, 3) improving manufacturing competitiveness. In terms of risks, key risks emanate from slow global growth, higher global and Indian interest rates for a longer period of time, and other geopolitical risks.

2. What has triggered the sudden change in market sentiment in India?

Significant buying from Foreign Institutional Investors seems to be a key reason in the sudden change in current market valuations. Moderation in commodity process (reflected in falling wholesale prices), improvement in CAD, rally in treasury yields in anticipation of peaking inflation and interest rates, and underperformance of large other Emerging Markets led to strong FII flows for India. Here onwards, outlook for inflation and earnings are generally considered key for market performance, as valuations are above average. Continuing moderation in volume growth could pose risks to earnings momentum over time.

3. What has been your investment strategy in 2023 so far? Are you planning to sustain on the same or you have a different plan?

In general, the strategy has been to focus on stock selection with a style agnostic approach, wherein we look for opportunities across growth, value and turnaround stories. We have remained benchmark aware in terms of sectors and we don’t believe in taking major sectoral calls. The focus of research effort is on understanding the businesses, the key drivers, forming a view on the key drivers and understanding the risks.

As of date, we intend to manage our funds in a similar way as it was managed in the past, with a steadfast focus on risk management. As and when we find valuation excesses in certain segments of the market, we could make necessary changes with a view to protect investors capital during that phase.

4. Not many investors are aware whether their investments are in an appropriate type of funds. Can you let these investors know about the criteria that will help them select an ideal fund for them?

Choosing the most suitable mutual funds from a vast universe of options can be a daunting task for most investors. In the midst of this challenge, it's crucial to cut through the noise and distractions and focus on what truly matters: aiming for the best long term experience in terms of returns and risks, while aligning with individual long-term goals. To identify mutual funds with the potential for long term performance, it is essential to look beyond short-term returns. A strong track record spanning more than 15, 20 or 25 years reflects a fund's ability to navigate through various market cycles, geopolitical events, and crises. It demonstrates the fund's resilience and the effectiveness of the investment team's processes, risk management policies, and a sound investment philosophy. When investing for long-term financial goals, investors should ideally prioritize those backed by extensive track records.

5. Where in the market do you still think there is value, and where do you think valuations are stretched?

With markets trading at all-time high, there are lot of excesses that have been created in certain stocks/sectors. While the headline valuations are above their long-term average, there are still pockets of opportunities in certain stocks/sectors. At the broader level, we are positive across themes. However, one should be mindful of the valuations when one enters into a particular sector/stock. As stock returns are a blend of earnings growth and valuation de/re-rating, the starting valuations become very important and that could determine the future returns.

At the sector level, we are positive on 1) Consumer Discretionary – Within consumer discretionary, we are positive on select sectors such as autos and auto ancillaries, 2) Utilities – due to attractive valuations, low thermal capacity addition over the last 5 years and reforms undertaken over the last year are also positive for the sector, 3) Communication Services – post consolidation in the sector, pricing power outlook has improved, 4) Information Technology – normalization in margins have put an end to earnings downgrade in IT sector as top line growth drivers are structural in nature, and 5) Industrials: on account of factors such as government focus on manufacturing, shift in global supply-chain, and the China+1 theme. We are negative on Consumer Staples given the growth and margin risk and excessive valuations and materials due to risk of global slowdown

DISCLAIMER: Views expressed are of Mr. Gopal Agrawal, Senior Equity Fund Manager of HDFC Asset Management Company Limited as of 25th July 2023. The current investment strategies are subject to change. The Fund/ HDFC AMC is not indicating or guaranteeing returns on any investments. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Stocks/Sectors referred above are illustrative and not recommended by HDFC Mutual Fund (“the Fund”)/ HDFC AMC. The Schemes of the Fund may or may not have any present or future positions in these sectors. Readers should seek professional advice before taking any investment related decisions.


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