With over 16 years in financial services, Sohini Andani, Fund Manager, SBI Mutual Fund, built her reputation in identifying multi-bagger stocks early. Now Andani manages SBI’s flagship bluechip and mid-cap funds with over ₹10,000 crore in assets. In an interview with BusinessLine , she speaks about the current economic outlook. Investors will be forced to wait longer to see equities deliver returns, she added. Excerpts:

Have you been able to gauge how the demonetisation of large currency notes will affect equities?

I think there will definitely be an impact on the growth and recovery of the economy but the exact impact cannot be measured. We speak to industry and companies often and get anecdotes about how they have been affected, but how much we can extrapolate that as a trend has to be seen. But for sure, corporate sector earnings growth, which we saw as recovering in FY18, is being pushed out again and again, and I think this will be across the board. Once growth slows down, it’s difficult to again bring it back to a faster mode. I don’t think this is a short-term 2-3 months impact, it will last longer. But we cannot put a number to this.

Our markets were very euphoric before demonetisation happened and now you’ve seen a lot of correction. Also, foreign money is moving out because of the change in direction in Fed’s interest rates, and we had the local event. It’s difficult to differentiate between the two events in terms of their impact on the markets but I think the selling pressure will continue. What we should be aware of is that FIIs have been net buyers for 5-6 years, and they’ve never really sold Indian equity till now. So technically they can still sell more.

What do you see as important triggers for markets in the near future?

I don’t seen any positive short-term triggers unless the growth rebound happens faster than expected. But I don’t see that happening. Today, on one side, there’s uncertainty about the growth, and on the other, raw material costs are going up. So if demand growth doesn’t come back, companies won’t be able to pass on the additional cost and margins will be squeezed. I think everything boils down to how fast earnings will recover.

The bluechip and magnum (mid-cap) funds have proven track records, but they have been lagging peers in the short term...

This is a short-term phenomenon. The blue chip is a top-performing fund in the long term, while the mid-cap has also done reasonably well over the same period. Our focus is on what we want to buy in the portfolio and what will create long-term wealth. We’ve made annual returns of over 100 per cent in certain years in the past, so in subsequent years I think these will automatically normalise because I’ve already made money on these investments.

You’ve made hugely successful bets in the past, such as spotting Pantaloon Retail early. Which are the sectors in favour with SBI MF now? Are you interested in the IPOs of say, BSE and CDSL?

I think the stock exchange business is a good business to own but it all depends on how strong the franchise is and we will look at it when it comes out. We are not positive on the markets in general now because it is slightly overvalued. But because of the recent cut in domestic lending rates, I think companies that are leveraged will benefit. Because growth is not there, some may also repay their debt from current cash flows, so they will become lighter businesses. If you look at the enterprise value of any company, it has debt and market cap.

Any opportunity where a company is replacing debt with market cap, we will be looking at it. Defence, infrastructure are good sectors to look at now. So is cement. It’s facing some issues in the short term but I think it looks good from a long-term perspective given the government’s thrust on building infrastructure and housing.

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