FROM THE DESK OF PARTHA RAY,CIO

The year 2016 began on a weak note that led the benchmark Nifty index to fall below 7,000 levels, almost 22% drop since March 2015 due to sluggish global economy and plunging crude prices.

Although selling was witnessed across the board, the worst being PSU banks (~29% fall) and Realty (~24%). The sell-off in PSU banks was primarily triggered due to RBI acting tough on NPAs resulting in higher provisioning, impacting their bottom line. However, defensive sectors such as FMCG, IT and Pharma corrected relatively much lower by 9%, 6% and 7% respectively.

Pessimism about growth in the global economy especially after the China debacle (including Yuan devaluation) resulted in concerns related to emerging market economies. This was further spooked by the Fed raising interest rates and negative interest rates policy in Sweden, Switzerland, Eurozone and Japan to counter deflationary pressures. The Chinese market also hit the circuit breakers in the beginning of 2016 while bank stocks in Europe have been witnessing heavy selling pressure. Moreover with oil hovering at its lowest level in a decade (~$30 per barrel), allocation of sovereign funds from the oil-rich countries went down leading to FIIs withdrawing funds from India. Oil is likely to remain down as supply will increase with sanctions being lifted on Iran.

The drop in crude price has benefitted our country which has to import majority of its crude requirement. As per estimates, India’s current account deficit for FY16 is likely to be around 0.7% of GDP, well below 1.3% in FY15, aided by lower commodity prices.

The forthcoming budget session is very significant in deciding the course of the market. All eyes are on the fiscal deficit target, whether it will be relaxed from the previously mentioned target of 3.5% of GDP in FY17 to propel growth. The government’s focus on infrastructure spending, passage of the GST bill and bankruptcy law, would have an impact on the market.

While implementation of One Rank One Pension (OROP) and 7th Pay Commission would increase the disposable income benefiting the auto & FMCG sector, it is to be seen how the government plans to mop up additional revenues to fund the same.

In this backdrop, we follow stock specific approach with a view of long term buy and hold. Currently, the top 15 stocks constitute more than 42% of the portfolio is skewed towards defensives – IT, Pharma and FMCG (16.93%) and Auto (5.56%) and the rest being in Banks and Finance. This is not to say that the sector rotation would not be pursued in the current year as there is a probability of the under owned sectors viz. cyclical and infrastructure showing promise in the years to come.

It is our belief and conviction that the portfolio is designed to deliver superior returns over a longer term horizon in the realm of 5 years and beyond as the stocks and sectors are clear market and segment leaders offering sustainable and reasonable returns from their businesses.

Risk Factors:
All Investments in mutual funds and securities are subject to market risks and the NAV of the Scheme may go up or down depending upon the factors and forces affecting the securities market. There can be no assurance that Scheme's investment objective will be achieved. The past performance of the Mutual Fund is not indicative of the future performance of the Scheme. Sponsor is/are not liable or responsible for any loss or shortfall resulting from the operations of the scheme. Shriram Equity and Debt Opportunities Fund is only the name of the Scheme and does not in any manner indicate the quality of the Scheme or it's future prospects or returns. There is no guarantee or assurance as to any return on investment of the unitholders. The investments made by the Scheme are subject to external risks on transfer, pricing, trading volumes, settlement risks, etc. of securities. Please refer to the Offer Document/Statement of Additional Information/Key Information Memorandum of the scheme before investing.