KC Reddy, CIO, ABN Amro MF on Fund Management

Different kind of funds call for different styles. But the basic things remain the same. In my stint with managing emerging market funds, I have become familiar with brokers, analysts and different sections of the market. Therefore these are not new to me. Lot of people have become fund managers in the bull market. There is less focus on research and more on taking big, macro calls. There is a tendency to speak to market people.

There is trading in lot of companies because either brokers or CNBC said so.

There is less discipline in India. We will focus more on in-house research and less on outside. We will do financial modelling and prepare forecasts and focus more on bottom-up approach.

In the last few years, everything went up and making money was not difficult. Index strategies worked well. Going ahead, though the long-term outlook is good, not everything will go up. It would be like the second half of the 90s, where it was difficult to make money.

Focus will be on bottom-up strategy.

Almost all schemes we have done some reallocation, though not completely. We have been keeping in line with the objective of the scheme, for example, we have exited positions where we had less conviction.

We have cut out overweight on index stocks, where we have less conviction. Global economy is in the process of slowing down. Any company exposed to the global slowdown is in the risk of earnings growth. We went underweight on commodities-related stories in June.

So far, it has worked in our favour. Other big companies, we are not negative on valuation, but the beta is not very high, given their earnings could fall 40-50%.
Similarly, we went overweight as early as June. Active valuations are factoring 30-50% drop in earnings already. But as the global credit crunch eases, MTM losses on the bond side could come down. Risk-reward looks very favourable.

Interest rates are close to peaking. Increase in inflation has flattened, if you noticed over the last few weeks. We might see an accelerated fall in global commodities, not only in oil, but also in agri-commodities. There is significant inventory build-up in edible oil, palm oil and soya. Lot of apple production is coming in and we expect a similar scene in copper also. Demand destruction is shocking. Prices will fall sooner than anticipated. And governments will be keen on cutting down rates to push growth. If our views ring true, we see bond yields closer to 8% than 9%, and then lot of MTM losses will be reverted.
Besides, banks are in a better position to pass on costs to customers than many manufacturing companies. Surprises are possible as most funds are underweight or short.

Even other rate-sensitive sectors such as real estate and auto are mildly positive from a trading perspective.

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