Anand Radhakrishnan, CFA
Managing Director & Chief Investment Officer – EME India, Franklin Templeton Asset Management (India) Pvt Ltd.
Mr. Anand Radhakrishnan is MD & Chief Investment Officer - Equity for Franklin Templeton Asset Management (India) Pvt Ltd. Mr. Radhakrishnan is responsible for overseeing all the local equity funds. His responsibility includes mentoring all the portfolio managers apart from continuing to be the Portfolio Manager for some of the key products. He manages Franklin India Bluechip Fund, Franklin India Equity Fund and Franklin India Technology Fund. Also he is co-portfolio manager for Franklin India Focused Equity Fund and Franklin Build India Fund.
Mr. Radhakrishnan has been in the investment management industry since 1994. He started his career with FT in 2004. His past assignments include Fund Manager, with Sundaram Mutual Fund for 8 years; Deputy Manager, Equity Research with SBI Funds Management Ltd.
Mr. Radhakrishnan earned his Post Graduate Diploma in Management from Indian Institute of Management, Ahmedabad in 1994. He earned his Bachelor of Technology degree, specializing in Chemical Engineering from Anna University, Chennai in 1990. He is a CFA charter holder
Q. How would you summarise the Indian equity markets for the year 2018?
Answer: While the global factors had a significant influence on Indian markets during the year, a myriad set of domestic factors also shaped the trend in domestic equities. 2018 was one tumultuous year for the Indian equity investors, which brought along euphoria as well as despair. Domestic frontline equity indices scaled life highs in early 2018, outperforming the mid and small cap segments during the year. Equities initially rallied on positive macroeconomic data, encouraging corporate earnings and robust global trade growth trend. However, faster growth in the US economy triggering concerns of quicker rate hikes by the US Federal Reserve and tighter monetary regime moderated the rally in global equities. Culmination of factors including persistence in global trade conflict, surge in crude oil prices and weakening of the EM currencies against the USD dampened global risk sentiments, dragging Indian equities in the latter half of the year. Introduction of long term capital gain tax on equities, state election-related volatility and weak macroeconomic parameters continued to weigh on domestic equities. Tighter global rate regime and an increase in domestic inflation triggered a couple of rate hikes by the RBI during the year. Further, pre-election volatility, weakness in macroeconomic parameters placed a drag on domestic equities. IT, FMCG, Banks and frontline indices ended the year positive whereas Realty, Small & Midcap segments lost heavily.
Some key trends defined the year 2018 for Indian market. Corporate earnings improved through the quarters in CY2018 initially on base effect and later, driven by domestic consumption, revival in industrial production and global demand. Macroeconomic parameters weakened but relatively positive micro indicators supported growth. On the policy front, continued strengthening and implementation of Insolvency and Bankruptcy code and asset quality clean-up for banks was a positive.
Q.What are your hopes/opportunities and fears/risks as we start the crucial 2019 year for the Indian markets?
Answer: 2019 is projected to be a year of synchronized global de-growth led by the US and some Asian economies. As the benefits of substantial fiscal stimulus from US tax cuts and greater public spending wane, US earnings and the broader global economic growth may moderate compared to 2018 levels. Comparatively, EM valuation shows a positive trend with MSCI EM index price falling versus EPS increasing. This augurs well for improving sentiments towards EMs. Focusing on India, domestic positives drove equity market valuations high during the year despite global risk-off sentiments towards EMs in general. However, the recent correction in global and Indian equities has brought respite to this situation by moderating the domestic equity valuation levels towards the close of the year. Elections in India have always played a significant role in shaping near term investor sentiments. State elections in this year and general elections just a few months away have understandably lent volatility to markets over and above the global factors. But the rhetoric on competitive populism by political parties on loan waivers, subsidies, reduction in GST, unemployment allowances, etc., is alarming. If implemented, these populist measures could boost rural consumption, but at the cost of lower funds available for infrastructure and capex growth. Inflation too might rear its head again after being benign for a long period of time. But these are more of risks than the most probable outcomes. Another cognizable risk is the possibility that persistent weakness in global markets in general and continued uncertainty in Indian markets could affect domestic flows going forward, making Indian equities once again vulnerable to FPI capital flows.
Though markets could experience interim volatility in the run-up to elections in 2019, on the growth front, the policy reforms undertaken by the present government to improve productivity dynamics in the economy – GST, Insolvency and Bankruptcy code, JAM trinity, improving ease of doing business, bank recapitalization, increasing FDI limits across sectors, to name a few, are expected to have a long-lasting positive impact on the economic growth. At present growth recovery is aided by consumption and exports growth. Prudent policy mix along with a pick-up in private sector capex should further favor the sustainability of growth momentum.
Additionally, as global growth moderates in 2019, pressure on commodity prices & hence inflation in general is expected to stay benign, paving way for benign monetary conditions. Domestic banking sector is expected to drive better credit growth as they recover from significant provisioning cycle, leading to improving demand conditions. Higher capacity utilization should lead to corporate capex picking up leading to broader revival in Investment cycle and earnings growth. In summary, we expect 2019 to be a better year for equities when compared to 2018.
Q. How do you pick up stocks in your flagship equity funds? What makes you different from others?
Answer: Franklin Templeton’s (FT) equity research process focuses not only on the track record of companies, but also on their future strategies and their ability to continue to generate wealth on a sustained basis in a competitive business environment. Wealth creating companies are defined as those which have the potential to produce returns consistently in excess of their cost of capital. A mix of both quantitative and qualitative factors for stock selection are employed. While quantitative factors include capitalization, stock liquidity indictors (shareholding pattern and free float, average daily turnover), qualitative factors include quality of governance, medium term industry growth prospects, sustainability of the business model, potential for corporate action etc. It’s only after both these aspects are thoroughly analysed can a decision be taken on whether to include a stock. During all market conditions, the key parameters that drive investment decisions are fundamentals and valuations. While macro factors give a broad sense of the industry’s trend, company fundamentals are heavily relied upon for active decision-making about the inclusion of stocks in the portfolio. This strategy adopted by FT has helped the funds deliver superior risk–adjusted returns over the last 24 years through various market cycles.
Q. How and when do you decide to exit a stock from your funds?
Answer: A stock will be sold from the portfolio when it is fully valued, if additional information from the research group gives reason to expect a negative shift in fundamentals, or if the earnings revision trend turns negative. If a stock has under-performed, the portfolio team must either decide to sell the position or add to it if they feel there is a solid reason why the stock performance will improve.
Key factors that trigger sell decisions
The decision to sell a stock is triggered by 5 events:
Negative earnings surprise
Adverse policy changes
Stock becoming expensive on valuation parameters
If a stock is overvalued due to price appreciation or is expected to report lower than initially expected performance, the stock is sold completely irrespective of its weight in the benchmark.
Q. How do you decide the allocation to debt in your equity funds? What is the investment strategy behind this debt portfolio?
Answer: The primary agenda of debt allocation in our equity funds is to manage liquidity / redemptions. The corpus is invested in liquid assets.
Q. What would be your advice to an investor looking for an equity exposure at present levels?
Answer: From an investment perspective, diversified equity funds with core exposure to large caps and prudent risk-taking in mid/small-cap space may be well positioned to capture medium to long term opportunity presented by the equity markets.