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`We are still positive on equities' — Mr N.K. Sharma, CEO, IL&FS Mutual

Nilanjan Dey

KOLKATA, June 8

IL&FS Mutual Fund, among the smaller players in the Indian MF circuit, is trying to expand its reach and improve performance. It has a range of equity and debt funds, and plans to add a few more in the days ahead.

Mr N.K. Sharma, CEO, shares his views with Business Line.

Excerpts from the interview

How do you see the stock market turning out?

We have been positive on equities for quite some time and still remain so. The recent rally has its underpinnings in the significant improvement in corporate performance in fiscal 2003 and the attractive valuations.

An analysis of corporate results declared recently reveals several common trends — improving cost efficiencies, better return parameters, rising free cash flow, reduction in leverage and significantly higher dividend payouts.

Another emerging trend is the progress made in developing export markets, and the consequent reduction of dependence on the vagaries on the domestic front. We believe there are progressive companies that are well placed to benefit from growth opportunities, internally as well as externally.

What makes you so positive?

Consider it from the market point of view. At least two factors stand out. First, buoyant portfolio investments by FIIs, which were almost Rs 1,200 crore in May. Two, lower selling pressure from within. Domestic mutual funds too have been witnessing modest inflows, indicating small signs of revival of interest in equities. This would strengthen the technical position of the market, which has been the bane of investors for long.

Valuations are good despite the recent run-up, holding the potential for a further re-rating of the market. There also exists a number of stock-specific opportunities... these offer a combination of good growth and low valuations.

How have you responded to the market's penchant for bank stocks?

We have been one of the early investors in PSU banks, which we felt were extremely undervalued. We continue to remain bullish on the banking sector as valuations can improve even further once there is clarity on certain critical issues.

Please note that banks have been cleaning up their balance sheets as well.

In fact, we have used the sharp run-up to book some profits. As on May 31, we had a weightage of about 17 per cent in IL&FS Growth & Value Fund. The stocks in our portfolio are SBI, OBC, PNB, BOB and Canara Bank.

Which other sectors appeal to you at the moment?

Apart from banks, we are optimistic about auto, auto ancillaries, engineering and steel.

Nevertheless, our fund managers have remained selective in picking stocks. The idea is to identify the companies that are best placed within these sectors. Some of our important picks, ones that have contributed to our performance, are Bharat Forge, Jindal Strips, Thermax, Crompton Greaves and Zee.

More recently, we have chosen Sesa Goa, which has done well in a short period of time.

How has your flagship equity scheme done lately?

The Growth & Value Fund has given around 26 per cent over the last 12 months. Its one-month tally is 14.5 per cent. The top holdings include SBI, Ranbaxy, HLL and Tata Steel. As on May 31, its cash position was about 15 per cent.

I may add here that we had an AUM of Rs 1,466 crore in end-May, of which approximately Rs 150 crore were in equities.

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