Naren recommends these MFs in current market | Economic Times

In an expensive market, opt for a scheme that is actively managed and the corpus is deployed across equity and debt based on their relative attractiveness, Sankaran Naren, ED & CIO, ICICI Prudential AMC tells ET Wealth.How are you reading the risk-reward scenario for Indian equities now?On a risk-reward basis, the Indian equity market is fairly placed relative to the world although on an absolute basis valuations are not cheap. From a business cycle perspective, Indian businesses remain attractive since corporates have deleveraged, credit growth, profit to GDP ratio is low and capex cycle is yet to revive. Even though the economic recovery is progressing slowly, it is well on track as can be gauged through fairly resilient domestic economic indicators.Will the anticipated change in US Fed stance create conditions similar to the taper tantrum of 2013?The potential US Fed rate hike is likely to be the biggest risk for the domestic market over the next two years. Unlike 2013, today global equity valuation, particularly of technology-oriented and new age sectors, are extremely overvalued. Hence, the risk in equity is higher. The risk in debt market too is elevated as interest rates globally are much lower compared to 2013. However, we do not see any credit events affecting good investment-grade companies. Indian economy is no longer fragile. With current account deficit under control and RBI accumulating more than $600 billion in forex reserves, we expect the rupee to be stable.What sectors or themes are you actively pursuing now?De-carbonisation is likely to be an interesting theme over the next three to five years. In oil, utilities and telecom, the contrarian part is yet to play out. We continue to remain overweight on power. Telecom is another sector which we believe is on the cusp of multi-year upcycle. Pharma and healthcare is another theme we continue to remain positive on. We expect valuations for domestic pharma segment to remain strong as M&A activity/PE deals continues to be healthy. Margin improvement on the back of cost optimisation is expected in the quarters ahead. Corporate banks with retail deposit franchise too look attractive.Recently ICICI Prudential AMC proposed rollover in its value-themed close-ended equity funds. Do you expect the value play to deliver a lot more?As interest rates go up in global markets over the next few years, value is expected to do well. Value and cyclical sectors are likely to perform in the near to medium term.What are the funds you recommend in current market conditions?Our base investing strategies have always focused on asset allocation given that market valuations are no longer cheap. When investing at elevated market levels, the optimal approach is to opt for categories such as balanced advantage or dynamically managed schemes. In such a fund, asset allocation is actively managed and the corpus is deployed across equity and debt based on their relative attractiveness. So, if an investor is looking for lump sum investment in the current market, balanced advantage category can be considered.Considering the next few years are going to be dominated by what happens in the global markets, you should be invested in a fund which offers flexibility. This can be addressed by investing across a diverse set of stocks through mutual fund categories such as the flexi-cap.Have mid-and small-caps had their time under the sun?An investor committed to staying invested over the next decade can consider initiating an SIP in mid-and small-cap funds. This is because these funds tend to be riskier in the short term but deliver returns over the long run. However, during a bear market phase, investors often tend to stop their SIPs recognising the risk attached with these spaces and miss on opportunities to make outsized gains over the long term. Hence, staying committed to investing via SIP is of utmost importance when investing in these pockets.ICICI Pru launched a commodities fund in 2019. Is there more upside left in this?While the near-term prospects appear encouraging, we believe the easy part of the returns has been clocked in. Hence, the risk associated with the category is higher than what it was in 2019 and 2020. The optimal way to approach this space remains by investing in a fund of fund scheme which can invest across multiple themes/sectors where the fund manager could shift allocation based on their conviction.ICICI Pru Flexicap Fund NFO saw record collections. What makes you bullish on this category?We believe ICICI Prudential Flexicap Fund is an interesting investment proposition for investors looking for equity allocation in their portfolio. The fund manager has the flexibility to move between various market-caps efficiently and take advantage of the valuation differentials. With the market no longer cheap, investors can opt for this category wherein the fund manager, in line with changing market condition, can manoeuvre portfolio allocation with ease.What is the ideal approach in the fixed income space now?It is likely that we are at the fag end of interest rate cut cycle. Going forward, RBI may have to do a fine balancing act. We believe evolving conditions points towards a more nimble and active duration management strategy which may help in navigating higher interest rate sensitive period. It may be an opportune time to invest in floating-rate bond schemes which may help in navigating the current high-interest rate volatility phase. Alternately, investors can consider investing in hybrid categories which have low equity allocation such as the arbitrage or equity savings category of funds.