Risk-reward to play out for large caps: Siddhartha Bothra

Indian markets seem to be relentless breaching fresh records and continuing with their phenomenal run. Equities will remain the stellar performer among other asset classes for investors with long-term perspective, says Siddhartha Bothra, senior vice-president-fund manager, Motilal Oswal AMC, in an interaction with Arpita Saxena.

Which asset class would you recommend investing in, given the huge volatility in the markets?

Since its February 2016 low of 22952, Sensex has witnessed a sharp upmove, after which volatility is not surprising and often expected. While volatility may continue in the near term, the medium- to long-term outlook for markets continue to remain positive. However, given the sharp rise in equities, new investors will need to invest with long-term perspective. We believe equities as an asset class will continue to outperform other asset classes over long-term.

How do you see mid-cap and small-cap funds performing?  What is your advice to long-term investors?

Mid and small caps as a category have had a dream run over the last three-four years. Over CY14-16, the CNX Midcap 100 Index has posted 21.2% CAGR returns, while the large cap CNX Nifty Index has posted only 9.1% returns. Going forward, in the medium term the risk reward seems more favourable for large caps, given expectation of earnings revival and the valuation differential between large caps and midcaps.

With the rupee gaining traction, can it potentially imperil equity markets? What made it gain an edge over the US greenback?

Any currency, if not pegged, is a reflection of the economic condition. As such, the strengthening rupee is in one way a result of the improving underlying macro fundamentals. Therefore, it alone should not pose a threat to the ongoing market rally. However, any deterioration in the fundamentals of the Indian economy or geopolitical factors could have adverse impact on the market rally.

The current account deficit, which has fallen from 6% of GDP in FY14 to below 1% of GDP and massive capital inflows, have led the rupee to outperform not only the US dollar but also other emerging market currencies. The Reserve Bank of India (RBI) has also not intervened much to stop the rupee from appreciating in recent months.

India Meteorological Department (IMD) has forecasted normal monsoon. Which sectors can perform well?

In recent times, reliance on monsoon for rural India has dropped, due to increasing non-farm income, increased use of irrigation, crop insurance and multi-crop farming. Notwithstanding these factors, a normal monsoon continues to remain a key sentiment driver in India. A normal monsoon should benefit sectors with high reliance on rural income and agriculture. Stocks like Bayer CropScience and Godrej Industries could benefit from normal monsoons.

Now that the Banking Regulation Act has received a green signal, bank stocks are on an upsurge. Would you advise investing in banking funds?

The banking, financial services and insurance sector allows several opportunities to a bottom-up stock investor. Retail investors are better off investing in broad based funds, as sector fund investing with a different risk profile is more suited for evolved investors.