After a volatile run in 2015, where does one find value in the markets? Will the markets deliver better returns going ahead? Bloomberg TV India caught up with Chandresh Nigam, MD & CEO of Axis Mutual Fund.

Where does the Indian market stand as far as FII flows are concerned?

If you look at the FII flows and the overall emerging market flows, they have been negative now for nearly two years. But the fact is that there was a good story emerging in India, which made Indian flows reasonably strong. However, that has changed over the last five-six months. That is leading to some tepid performance in the market.

Eventually, it is not just the flows; it is the corporate performance which will drive the markets. Ultimately we do believe that corporate profits drive stock prices. Now those conditions are still not in place.

Expectation is that over the next 12-18 months those conditions will begin to be in place; also the fact that India will be relatively a very large outperformer as compared to the other parts of the world. The rest of the world is grappling with some kind of a deflationary crisis.

And, with India growing at 6-7 per cent, we think the FII flows which have turned negative will also start to look positive. With reasonably strong domestic flows, corporate profitability should go back to double digits. With foreign investors turning positive, I think we are very positive on the Indian market. In terms of what the investors are looking for, those who came two years back into the market have got reasonable return. We don’t know when the markets bottom out and start to move up again. But the medium to long term investors can continue to expect returns lying with the corporate profit growth, which has been 16-17 per cent in the last 20 years.

Where do you see value at this point in time? Would you be looking at any change in the investment strategy within Axis AMC?

There is one thing which we will have to focus on and that is more a question for FY16. If our concerns on the global economy really come to the fore, in which case we say that generally the world is more deflationary, we will have to take that into account for many bottom up business analysis which we do. Our take is that in that kind of environment you will actually see fewer companies doing well.

So while India will grow at 6-7 per cent rate, it will not be enough to move up the fortunes of all the 1,100-odd listed companies. I think we will be more focused and stay within the 200-250 top quality companies in the country.

However, if the global economy does slightly better and the Indian economy riding on that, does better than the 7 per cent, which means that there is some kind of a rising high tide, in that case we would look to take on little bit more risk and expand our universe from the high quality 250 companies to be a little bit more some kind of economy sensitive business in 2016. But I think the jury is still out on that. It will take some time for us to really assimilate the data which is going to come in first half of 2016.

That will be quite significant, especially after the rate rise which everybody is now expecting next year — the Fed rate rise in the US. So the next six months or so is going to be our wait-and-watch period.

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