Why this is right time to invest in equity mutual funds

Below is the verbatim transcript of Navlakhi's interview with CNBC-TV18.

Q: We have seen foreign investors bringing in flows into our equity markets and yet recent data shows that mutual funds have been net sellers. What is the reason they are facing this kind of redemption pressure? Logically, wouldn't this be a good time to be buying?

A: Mutual fund investors have got tired so they have been waiting on the sidelines with their investments, which have been in the red and when they start seeing it getting into the black, they decide to bailout. Our view has been quite the opposite ever since the time in September that the government decided to hike diesel prices by 10 percent and somewhere around that time when the index was 17,300 level, one has not seen 17,000 since that time.

It has crossed 18,000 and then hovered between 18,000 and 20,000 from that time on and essentially investors must remember few macro and fundamental reasons why they should invest in equities.

In the short run of course there are sentimental reasons and that is why there is some selling pressure, but long-term investors, I can see a whole bunch of positives in the market as follow:

(1) we are at the top of the interest rate cycle, we are seeing that interest rates are going to come downwards and whenever that happens it is typically very good for corporate

(2) valuations have now dropped below the long-term average so it is not like dirt cheap, but it is certainly a time when one should consider investing in Indian equities

(3) internationally also we are getting supported on two fronts; one, commodity prices have fallen sharply and as a result of that one has seen the impact on oil prices etc so the subsidies that Indian government had on petrol and diesel, apart from their increasing prices on one side the subsidies have dropped because international prices have also dropped and simultaneously one is seeing that the quantitative easing by US and Japan is continuing so one is seeing flows continuing to come into the market.

Therefore, whole bunch of reasons why I would recommend that people do look at equity markets.

Indian growth numbers, gross domestic product (GDP) numbers were not very good but if compared with the international markets, they are relatively much better and the fact of the matter is that in the long run it is profits of companies and the growth in profits of companies, which will dictate the type of returns one make in the equity markets.

So, I would strongly recommend people to look at equities as an asset class, consult financial advisor and look at asset allocations. Therefore, I am not saying go overboard and pump in all money today, but certainly look at asset allocation and the amount that need to add to equity. One way of reducing the risk is to enter in a staggered manner.

So I can see whole bunch of reasons and when one look back at September to today on macro front, one do not know what sort of reforms or what sort of issues -- there have been issues on political front, corruption front, but over the years India has proved far more resilient and I do see scope for investing in equities.

Porter Novelli Introduces PNConnect - Analyst Blog

Leading public relations company Porter Novelli, a part of the Diversified Agency Services division of Omnicom Group Inc. (OMC), recently introduced PNConnect, a global digital marketing team consisting of experts to deliver brand publishing programs.

Any successful brand publishing campaign requires an exclusive mix of services ranging from strategic planning and web development to creative production and day-to-day operations. PNConnect addresses all these needs, banking on its team of experts in digital and communications fields, working with clients across the globe.

PNConnect offers services such as video production, digital advertising planning and creative, as well as producers and community managers for its clients. The program also helps its clients plan, produce and publish approximately 1,000 pieces of content on a daily basis. One of the major offerings of PNConnect is to provide its clients the facility to connect with and reach their target audiences at specific timings and locations. This results in relevant and targeted promotions across digital media and communication as per clients' requirements.

Porter Novelli has a rich experience in working with some of the largest global brands for the execution of their digital marketing strategies. It has focused on innovative ways to help clients and create business value.

Omnicom is one of the largest advertising, marketing and corporate communications companies in the world. Omnicom has a strong track record of winning new clients and receiving additional deals from the existing ones. The company's business mix is well-diversified geographically and benefits largely from the growing markets. In addition, the company's efforts in controlling expenses and its strong global reputation are commendable.

Omnicom currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look are Gartner Inc (IT), Huron Consulting Group Inc. (HURN) and Harte-Hanks Inc. (HHS), each carrying a Zacks! Rank #2 (Buy).

Will EMC Continue to Run Higher?

With shares of EMC Corporation (NYSE:EMC) trading at around $24.88, is EMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

EMC has underperformed the market year-to-date, which has frustrated investors. However, the past month has been strong – the stock is up more than 7 percent. Investors had been waiting for a catalyst earlier in the year. After a Q1 where revenue increased 5.80 percent year-over-year but earnings declined 1.20 percent year-over-year, there wasn't a lot of reason for investor conviction. This led to EMC making a couple of moves. It now yields 1.60 percent, and it expanded its share repurchase program to $6 billion through December 31, 2015. It should be noted that $3.5 billion will be repurchased by the end of Q2 2014.

EMC will also increase its debt load in order to fuel growth. This may lead to acquisitions in the areas of cloud computing, big data, and/or IT. EMC has displayed strong debt management to date. Despite the companies renewed hunger for growth and the increasing debt, the balance sheet will remain strong for the foreseeable future. Therefore, R&D and innovation opportunities will remain.

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In regards to revenue, EMC has a compounded annual growth rate of 11.55 percent over the past four years. Revenue has consistently improved on an annual basis, but the pace of growth has slowed. The same pattern has been seen for NetApp (NASDAQ:NTAP), but on a different scale. Hewlett-Packard (NYSE:HPQ) has had a more difficult time as its revenue and earnings declined last year as well as last quarter on a year-over-year basis. Hewlett-Packard is struggling with a -11.60 percent profit margin. By comparison, NetApp has a profit margin of 7.98 percent, and EMC has a profit margin of 12.39 percent. NetApp is trading at 28 times earnings, and EMC is trading at 20 times earnings, making EMC look like the better value.

EMC Proven Solution may act as a catalyst going forward. This is private cloud computing. If successful, the rewards could be large. Cloud computing is booming, and this boom is expected to continue for many years. Storage is a concern for most businesses, and cloud computing offers businesses an opportunity to save time and money.

EMC's company culture is above average. According to Glassdoor.com, employees have rated their employer a 3.5 of 5, and 71 percent of employees would recommend the company to a friend. As far as leadership is concerned, 88 percent of employees approve of CEO Joe Tucci. This is an impressive number. It all starts at the top. If a good leader is in place, then the odds of success greatly increase.

In regards to analysts, they love the stock: 33 Buy, 7 Hold, 0 Sell.

On the negative side, there has been a decline in IT spending throughout the industry. Another negative is that operating margin for EMC declined 30 bps year-over-year to 18.9 percent. However, do the positives outweigh the negatives for EMC? That answer will be revealed soon.

Let's take a look at some important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

EMC has picked up some upside momentum over the past month. Can this momentum continue?

	1 Month	Year-To-Date	1 Year	3 Year
EMC	7.20%	-1.11%	1.54%	34.95%
NTAP	5.84%	14.04%	26.15%	-0.60%
HPQ	13.99%	73.40%	13.34%	-44.21%

At $24.88, EMC is trading above its averages.

50-Day SMA	23.52
200-Day SMA	24.09

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E = Equity to Debt Ratio is Strong

The debt-to-equity ratio for EMC is stronger than the industry average of 0.20.

	Debt-To-Equity	Cash	Long-Term Debt
EMC	0.07	6.53B	1.70B
NTAP	0.48	6.95B	2.25B
HPQ	1.12	13.24B	26.79B

E = Earnings Have Been Strong

Earnings and revenue have consistently improved on an annual basis over the past three years.

Fiscal Year	2008	2009	2010	2011	2012
Revenue ($) in millions	14,876	14,026	17,015	20,008	21,714
Diluted EPS ($)	0.64	0.55	0.88	1.10	1.23

Looking at the last quarter on a year-over-year basis, revenue improved and earnings declined. Both revenue and earnings declined on a sequential basis. However, EMC is now getting more aggressive.

Quarter	Mar. 31, 2012	Jun. 30, 2012	Sep. 30, 2012	Dec. 31, 2012	Mar. 31, 2013
Revenue ($) in millions	5,094.38	5,311.39	5,278.18	6,029.96	5,387.38
Diluted EPS ($)	0.27	0.29	0.28	0.39	0.26

Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

To put it simply, even if IT isn't as strong as in the past, demand for cloud computing is expected to increase, and data levels will intensify. EMC is aiming for simplification in all areas, and buyers of any product or service appreciates simplicity. Combining these factors with a 1.60 percent yield, an expanded share repurchase program, and quality leadership, EMC is an OUTPERFORM.

Abbott Labs Earnings Have a Lot of Catching Up to Do

Abbott Labs (NYSE: ABT  ) will release its quarterly report on Wednesday, and investors are getting a bit jittery about the company's prospects. With Abbott having shed its pharmaceutical division back in January, AbbVie (NYSE: ABBV  ) has been trading separately for more than six months now, and Abbott is still trying to convince investors that it has as much growth potential as the pharma side of the business.

So far, though, AbbVie has beaten Abbott in the stock-performance battle as several of the remaining parts of Abbott have suffered from slow growth and industry-specific headwinds. Can Abbott catch up and restore the portion of earnings it got from AbbVie in the past? Let's take an early look at what's been happening with Abbott Labs over the past quarter and what we're likely to see in its quarterly report.

Stats on Abbott Labs

Analyst EPS Estimate	$0.44
Change From Year-Ago EPS	2.3%*
Revenue Estimate	$5.52 billion
Change From Year-Ago Revenue	3.9%*
Earnings Beats in Past 4 Quarters	4

Source: Yahoo! Finance. *Includes adjustments for AbbVie spinoff.

Will Abbott Labs earnings get a boost this quarter?
Analysts have kept their views on Abbott's earnings prospects largely unchanged in recent months, having kept their estimates for the June quarter and for the full 2013 year steady. The stock, though, hasn't been able to keep pace, falling 4% since early April.

The primary issue behind the ambivalence that investors have toward Abbott Labs is that the company discarded its highest-growth segment when AbbVie became a separate company. In the first quarter, the company's medical-device business saw sales in the U.S. drop almost 13% from the year-ago quarter, and Abbott's generic-drug business also saw a year-over-year drop in sales.

One more promising area of growth came from Abbott's nutritional segment, which posted a 9% rise in revenue in the first quarter. In particular, pediatric products picked up sales by 20%, with emerging markets providing a much-needed boost to the business. With Abbott having built plants in India, China, and other developing markets, the company clearly recognizes the potential in the division.

Abbott's diagnostic division has also had recent success. Last month, the company had its Realtime HCV Genotype II hepatitis-C test approved by the FDA, giving doctors the information they need to prescribe treatment regimens that are better tailored to individual patients.

Still, the big challenge for Abbott will come from the medical-device arena, where many of Abbott's peers are struggling. Johnson & Johnson (NYSE: JNJ  ) has seen double-digit percentage sales declines in its cardiovascular equipment division, with growth coming solely from its major acquisition of Synthes. Meanwhile, Boston Scientific (NYSE: BSX  ) has suffered even steeper declines in sales than Abbott, as its cardiac rhythm management business in particular has seen increased pricing pressure from competition. Abbott and Boston Scientific both compete in the drug-eluting stent niche, and even though Abbott has come out with recent advances, its stent sales were down 15% in the U.S. last quarter. Still, the company sees the area as having promise, as just this morning, Abbott announced it would acquire leg-stent maker Idev for $310 million.

When Abbott Labs releases earnings, take a close look at all the segment-specific results to see where Abbott's best growth prospects are. Management will hopefully provide some guidance on its purchases today of Idev and of cataract laser-surgery system-maker OptiMedica and how they fit into its overall strategic vision going forward. Yet without a more substantial catalyst to ramp up its future net income, it's hard to see Abbott's shares moving sharply higher from here.

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