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Sanjay Sachdev - Managing Director & CEO of Principal Pnb Asset Management Company -
February 7th, 2006
This is one more Interview for you all.....
Sanjay Sachdev is Managing Director & CEO of Principal Pnb Asset Management Company (in association with Vijaya Bank.) Mr. Sachdev also serves as Country Manager (INDIA) at Principal Financial Group, Director on the Board of Principal Consulting (India) Private Limited and Pnb Principal Insurance Advisory Company Private Limited. Mr. Sachdev has a rich International experience of over 19 years, ten of which have been spent working with the Pension & Mutual Fund operations at the Principal Financial Group. He holds a Master’s Degree in International Management from the American Graduate School of International Management (Thunderbird), Phoenix, AZ., USA and a Degree in Law from the Government Law College, University of Bombay, India. A Certified Financial Planner, he is credited for co-founding the CFP Program in India. Mr. Sachdev is a Fellow of the Life Management Institute and LIMRA Leadership Institute (LLIF), both based in the USA. He is also an Associate member of the American Bar Association. He is the founding Chairman of United Way of Mumbai (part of United Way International.) Mr. Sachdev has and continues to hold several key and responsible positions on various regulatory and professional boards.
Principal Pnb Asset Management Company Private Limited (in association with Vijaya Bank) is a joint venture between The Principal Financial Group (Des Moines, USA), Punjab National Bank, and Vijaya Bank. The Principal holds 65% in this venture. Today, more than 452,000 investors have entrusted us with managing their assets worth US$ 1.54 billion (Rs.7,056.61 crores.) The Principal Financial Group is a 125-year-old global retirement services company, which has been an active participant in the evolution of the U.S. pension business for more than 60 years. The Principal is the largest manager of 401 (K) Defined Contribution plan in the USA. Serving about 15.3 million customers worldwide, Principal manages assets in excess of US$ 188 billion.
Sanjay Sachdev tells Anil Mascarenhas of India Infoline that the newly launched Principal Services & Infrastructure Industries Fund would seek to minimize risk and optimize returns by dynamically allocating funds to Services & Infrastructure industries.
What significant changes do you see going ahead on a macro level?
Long term interest rates should stabilize and are unlikely to harden much during the year. The recent run up in the short term interest rates should unwind in the first half of the year. While industry will continue to do well its rate of growth will slow down. Fiscal deficit will be a bigger concern this year, than it was last year.
Your equity funds have performed well in the last one year. You say you have succeeded in giving your competitors sleepless nights. What has led to this performance?
Funds have been allocated to high growth sectors with high visibility of earnings expectations, which has helped fund performance. The focus remains to optimize returns over a longer duration. We took concentrated positions in industries such as capital goods, cement, construction, which has helped the fund performance.
How is your investment style different from other fund houses?
We have a bottom up research oriented process while evaluating a company. We look at its business franchise, quality and capability of its management, and its valuations. We tend to favor companies which are generating strong cash flows or will be in a position to generate strong cash flows in the near term.
Recently some close ended equity funds have been launched. What would be an advantage of investing in these types of funds?
There are certain categories of assets, which lend themselves to close ended funds better. These are relatively illiquid segments of the market such as small caps. Normally, investors tend to take profits and time the market. These funds should create more discipline among the investors to invest for the long term. India is a strong long term story for equity. Investors should gain from remaining invested rather than timing the market.
What would be your investment strategy for your new fund? What is the rationale of launching an infrastructure & Service industries fund? Isn’t there a higher risk?
Usually one would have expected the second sector to be a hedge on one of them. The fund will seek to minimize risk and optimize returns by dynamically allocating funds to Services & Infrastructure industries. In a scenario where infrastructure industries are seen as providing better returns, the fund may increase allocation to infrastructure industries up to 75% and in a scenario where services industries are attractively valued, the fund may increase allocation to services industries up to 75%. In times when both the segments are attractively valued, the fund may give equal weightage to the two segments.
The services component of the fund, due to its inherent strengths of consistent growth & earnings expectations would lend stability to the portfolio. The infrastructure portfolio’s performance is linked to the long term change happening in the Indian economy and the benefits will unfold for both companies engaged in the business and the consumers over the long term. Both infrastructure as well as service companies are expected to outperform the broader market index.
Which stocks will your new fund focus on. Large Cap or Midcap?
The Principal Services & Infrastructure Industries Fund will primarily invest in large cap stocks and exposure to midcap stocks will be restricted at about 35-40% of the portfolio.
How big would be an impact of rising crude oil prices in the next one year on the inflation & economy? Is it a good time to invest in oil sector? What are your views on the economic indicators such as GDP growth, Inflation?
High oil/ energy prices will have an impact on the energy intensive manufacturing companies. We have already seen the impact of these on the results of companies over the past two quarters. However, the economy is going to be led by both consumer demand and the strong capital expenditure cycle. We do not see a relatively modest hike in crude prices to have an impact. The Indian oil Refinery & Marketing companies face challenges from newer entrants for diesel and gasoline sales. Besides, the subsidy burden also is weighing in these companies. In this scenario, investment in Refinery & Marketing may not be a good idea. However, Exploration & Production companies are performing well and may be looked at.
Which three sectors could outperform others in the current year? Cite reasons for the same?
The three sectors which could outperform would be capital goods, cement and banks.
Capital Goods: Strong order book visibility. Sustained profits, likely over next 3-4 years.
Cement: Led by the demand in construction: industrial, infrastructural, and residential. Demand supply situation may turn favourable.
Banks: Play on the growth of the Indian economy, and the strong consumer demand. Attractive valuations on a regional basis. Clean balance sheets.
Which category would outperform among the Diversified, Sector, Index and ELSS Funds in the next one year? How much returns investors can expect from these funds in the next one year period?
As the markets are expected to consolidate in the coming months, diversified equity and ELSS funds are expected to outperform an index fund in the medium term. Sector funds may perform in line with the fundamentals of the respective sectors. However, over the long term, an investor should have an exposure to diversified funds as core holding and then tactically take positions in the sector funds if he wants to be overweight on a particular segment.
What would be the importance of budget going forward in India? What are your expectations from forthcoming budget?
The long term importance of the budget has been coming down in India, as the fiscal policy has tended to become somewhat more predictable. We hope that the upcoming budget has concrete steps on controlling the fiscal deficit. We also hope it incentivizes more saving by individuals.
What are the parameters retail investors should watch out for while selecting an equity fund ?
For a long term investor, the risk adjusted returns along with consistency in adhering to the investment objectives of the scheme and the track record of the fund house should be the parameters in guiding the investment decisions. The scheme along with its investment objective should fit in with the investment objective of the investor and that should determine the allocation to a particular scheme in the investor’s portfolio. In addition, the comfort that one has with the fund house and the servicing standards are important parameters too.
In US there are around 9000 different schemes whereas in India there are less than 400. Do you see a rapid growth in schemes going ahead. Where would the differentiator be?
Going forward we see a more meaningful segmentation of funds in India. To some extent it has begun to already happen. As more financial literacy comes in and financial planners become important, investors will choose funds based on their needs. We may see style boxes, which segment funds by their characteristics becoming more important going forward. This process could get accelerated as institutional investors like Pension funds become important investors in equity.
You say investors can expect 18-20% annual returns on a continued investment for at least 3 years? What are some of the factors, which will keep the India story going? What pitfalls do you foresee going ahead?
We expect investors, who invest in the equity markets now, should have a time frame of 2-3 years at least, as near term the markets are likely to be volatile. The market returns should track the profit growth rate of companies, which are likely to be 13-15% in the next two years. The impact of the spend on infrastructure is going to be dramatic over time, as efficiencies get unlocked in the economy. This will lead to sustained growth in GDP for the next 4-5 years. The biggest concern is that the government interference in businesses increases. Also, the fiscal deficit is a concern, as that can crowd out Government’s spend on key infrastructure spends
Last edited by nick18_in; February 9th, 2006 at 09:33 PM..