‘Small investors should go the SIP way’

The SBI Blue Chip Fund managed to mop-up Rs 2,900 crore from investors during its new fund offer period. Sanjay Sinha, head of equity at SBI Mutual Fund talks to Sanat Vallikappen of DNA Money about how it’s easy to manage large corpuses now, the way forward for the equity markets and why there’s reason to cheer despite the markets looking expensive.

Is the Indian equity market still attractive?

Though valuations might seem a little stretched, the rate of growth of corporate earnings is robust. Unlike other emerging economies, our GDP growth is rooted more in domestic consumption rather than exports.

If valuations are stretched, does it mean the markets have peaked?

The consensus estimates for corporate growth rate in FY07 is 17-18%. If it grows beyond this, then valuations are fair. Whenever there is unprecedented growth and liquidity, the markets will tend to trade at a premium to historic valuations.

Is the Indian market over dependent on FIIs ?

The very fact that mutual funds are garnering in excess of Rs 1,000 crore in their new fund offers is proof that domestic money has also started pouring in to sustain the rally. Besides, the foreigners are also here for the long term. The myth that Japanese investors come in at the peak of a rally has been disproved. They started coming in when the Sensex was at the 6000-6200 levels. Today, the index is well past the 10,000 mark.

Will funds be able to manage their huge corpuses, given that some MFs have closed schemes for further subscription?

The schemes that have closed are ones that are largely mid-cap oriented. Closing a scheme would depend on the investment style followed by that fund. Large-cap and mid-cap stocks are differentiated only by liquidity these days. Since liquidity is not a consideration, corpuses in excess of Rs 1,500 are not difficult to manage.

What are your expectations from the budget? What is your advice to small investors?

The government should carry the reforms process forward. The country is crying out for infrastructure and this should be addressed. Besides, labour law reforms should be articulated well. Meanwhile, the small investor should expect reasonable returns. The markets might surprise him in the short-term with unexpected gains, but I advise the small investor to adopt systematic investment plans to route his investments into equity. A fair amount of volatility can be expected in 2006.