Nimesh Chandan, recently elevated to Head — Investments (Equities) at Canara Robeco Mutual Fund, advises investors to use SIPs to benefit from the volatility in the market that helps them build wealth over the long term. Chandan, who has been with Canara Robeco MF for over a decade, will actively guide the equities team in providing strategy for various funds. Excerpts:

At a time when some global fund managers are reducing their India weightage, especially in the mid- and small-cap space, how confident are you on your new small-cap fund?

We believe that uncertain and volatile times present good investment opportunities. When people are fearful, their fears get incorporated in the stock prices by sharp declines. Often, this results in over-reaction on the downside and opportunities to pick up companies with good margin of safety arise.

The significant correction in the small-cap segment in CY2018 presents us with such investment opportunities in the small-cap space. Therefore, we believe the timing of the small-cap fund launch is very good. Though one cannot predict the exact bottom for the market, one can know when the valuations are attractive. Currently, for many small-cap companies, the valuations are at a level which makes the risk-reward matrix attractive.

What is your investment strategy?

We believe it is the quality of the company’s business and management that creates or destroys wealth for investors over the long term. We look to invest in companies that have a business model which has a strong value proposition for their customers and make profits for their shareholders; businesses that offer good potential to scale up and have a competitive advantage to achieve growth potential. Companies must also have a management which has talent and integrity.

Corporate governance issues are once again haunting India Inc. Are you prepared to handle such sudden governance risks as a fund manager?

Corporate governance is a very important consideration in evaluating the companies before we invest in them. It forms part of the investment process where we evaluate the qualitative aspects of the management of the company. Several check points on matters of corporate governance are part of our investment checklist. We, at Canara Robeco, have a good track record in this aspect since the inception of the joint venture in 2007.

Are investors stopping SIPs due to the sharp correction, where several stocks have been hammered by over 50 per cent even though headline indices are painting a rosy picture?

It’s good to see the SIP investment amounts for the industry continuing every month. Investors understand that SIP helps them benefit from the volatility in the market and helps them build wealth over a longer term. Equity markets do have corrections from time to time and hence, it is always advisable to use SIP to participate.

Index performance is representative of the category of stocks it represents. In 2018, the large-cap companies performed better than mid- as well as small-cap companies. This is the reason why Nifty and Sensex show good performance for the year compared to the mid- and small-cap indices.

Do MFs feel disappointed over the Budget’s silence on long-term capital gains tax and STT?

It’s been only a year since the government decided to introduce long-term capital gains tax and I don’t believe people expected any change in this Budget. So, I don’t believe this is a disappointment.

As there is talk of a hung Parliament after the forthcoming elections, how do you see the election outcome impacting markets?

Being risk-aware is a good condition to have for the market. When investors are overconfident about an outcome, there is scope of surprise or to be upset and that creates more volatility. Elections are particularly difficult to predict and especially when a marginal vote swing can end in very different outcomes.

Investors will move with caution towards the elections and the near-term movement of the market can be guided by that behaviour. Long-term studies have shown that Indian equity markets have delivered good returns to investors, despite changes at the Centre. If investors can keep their nerve during the short-term volatility, such events can provide opportunities for good investments.