Mr. Amit Ganatra

Head of Equities, Invesco Mutual fund

Q1. As August series ended on a sombre note, how do you see September unfolding? It seems to be lacking cues and has begun on the lower end of the rollovers. What do you think will happen in the coming months?

We continue to remain sanguine on the arbitrage spreads. Reasons being:

  1. Retail/ HNIs continue to remain long on stock futures. Also, midcaps/ small caps have performed superbly inspite of the large cap performance being muted in Aug. Retail/ HNIs generally tend to pay higher roll spreads and more so when they are sitting on profits which is visible from the performance of non-Nifty names in the last few months.

  2. Mfs as %age of total open Interest is still at the lower end of the historical range. When this percentage increases, arbitrage funds tend to fight amongst themselves, thereby putting pressure on the spreads. As of Aug end, this %age was only 49% on August 30, whereas the range has been 45% to 65% in the last 2 years.

However, one should keep a watch on the corpus of the industry. If that continues to balloon, spreads will get impacted adversely in the future.

Q2. In the last three months, the BSE Smallcap index rallied by over 20%, and the BSE Midcap index by 17%. What is fuelling this rally in the small & midcap space?

Small Cap’s and midcap’s valuations had become attractive by March 2023 – as the set had undergone some time as well as price correction in FY2023. Also, earnings growth in India continues to be broad-based ensuring participation of a broader universe in the earnings growth. This twin aspect of continued earnings growth support and attractive starting valuations attracted large flows to the category, which in turn led to a sharp rally from lows.

Q3. What is the most significant change you've made to your portfolios between April and now? Is there any fundamental shift in terms of positioning?

In most of the funds, midcap and small exposure was increased in March and April due to the factors explained above. Otherwise, most of the other changes are specific to the mandates of the fund.

Q4. With the successful landing of Chandrayaan 3 on moon, the space industry is expected to grow in many folds. What are your views on this industry and have you made any significant changes after this news in your portfolio?

Space Industry is part of the overall Industrials space and most of our portfolios are already overweight Industrials for the last couple of years. Hence, no incremental changes were required on account of this event.

Q5. What are your thoughts on the latest passive trend? Is it just a herd mentality, or are investors truly following the passive approach?

Outperforming the benchmarks on a consistent basis is becoming difficult, specially in Large Cap space and hence, passive funds especially in large cap categories are attracting flows. However, passive investing also has its own perils and one should respect asset allocation as well as have a blend of active and passive to achieve long-term journey of wealth creation.

Q6. Are there any new emerging market trends that look interesting to you and worth betting on?

India is experiencing a strong broad-based earnings recovery largely due to the confluence of the following factors, and each of them are important themes for future:

  1. Strong balance sheets of Corporate India and the Banking sector is driving willing as well ability to borrow and lend – thereby driving credit upcycle in the country.

  2. Market share gains of organised versus unorganised in various sectors – especially in consumer space are driving strong outcomes for the listed universe at the expense of unorganised.

  3. Capex by the Manufacturing sector for export opportunities and import substitution is leading to revival of private sector capex in the country.

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