Opportunity cost of staying out of equities is building up: Lalit Nambiar

"Do not underestimate the power of compounding and stay invested in equity for long periods of time if you want to amass serious wealth," says Lalit Nambiar, Senior Vice President and Fund Manager (Equities), Head Research, UTI Mutual Fund.

In an exclusive interview with Varsha Inamdar, Lalit Nambiar further said, "G-Sec yields will likely remain sticky around current levels and profit opportunities in fixed income products will also be difficult. Thus the opportunity cost of staying out of equities is building up. Equity fund assets will be a function of net inflows as well as market activity and is a difficult call."

1. How do you see the market outlook?We continue to expect volatility at least till Lok Sabha elections. On the domestic front, we expect that the fuel price hike was more to stave off a sovereign credit rating downgrade as was possibly the case with some of the recent FDI announcements. The market will wait to see if they actually result in FDI flow. In the case of retail sector FDI, for instance, the onus is really on the state governments. On the international front, If the experiences of QE2 in November 2010, LTRO in December 2011 and Operation Twist in July 2012 are anything to go by, QE3 impact will fade out in a few months, especially as the Fed governor may likely change his stance after the US presidential elections.

2. According to you, how RBI will act in response to slowing growth and higher core inflation?CRR cut has already happened and we don"t think in the immediate future anything else is forthcoming from RBI. In any case action is required more on the fiscal front than the monetary front.

3. At present, in which sectors are you bullish or bearish on?We will stick to companies where we think the business model or franchise holds up well in inflationary conditions, that is where the company is in a position, due to the nature of price elasticity in the sector or leadership in its segment, can pass on cost increases. This ensures EPS growth, attracting more investors who bid up the P/Es, resulting in these stocks outperforming others where EPS is less certain.

4. July IIP came at 0.1%. What is your view on the figures?I think one month is too short a time frame to comment. That said, there is anecdotal evidence of an industrial slowdown.

5. What is the growth that you are expecting in assets of equity funds in near future?I see people slowly moving towards equity, as rates on bank FDs come down due to decelerating loan demand from industry. Also G-Sec yields will likely remain sticky around current levels and profit opportunities in fixed income products will also be difficult. Thus the opportunity cost of staying out of equities is building up. Equity fund assets will be a function of net inflows as well as market activity and is a difficult call.

6. Your advice to investors in current market scenario.Invest through SIPs in MFs. Do not underestimate the power of compounding and stay invested in equity for long periods of time if you want to amass serious wealth.