''Domestic cyclical sectors such as financials, industrials and consumer discretionary to outperform in an improving growth scenario,'' says Pradeep Gokhale, senior fund manager, Tata Asset Management.
In an interview with Varsha Inamdar of Myiris.com, Pradeep Gokhale said, ''Retail investors should increase their exposure to Indian equities using SIPs / STPs and use any volatility in the markets to invest larger amounts.''
Excerpt from interview Myiris had with Pradeep Gokhale:
1. At current market levels, what are your views on the equity markets?
The markets are trading at all time high levels and enthusiasm and hope are back in the market. However, while Sensex and Nifty levels are near all time highs, the valuation levels are nowhere close to previous peaks. Market valuations are closer to the long term averages and analysts expectations are projecting modest upgrades over a base of low earnings growth over the last few years. Structurally, Indian equity markets have been attractive due to its demographics, balanced economy, low debt levels and high savings rates of households, etc. The economic growth is bottoming out. The key problems facing the Indian economy viz. CAD, fiscal deficit and high inflation are getting addressed. With a decisive election mandate, we have a government that can follow pro-growth policies. Thus, after a few years of moderate growth, economic growth and earnings could see a good pick up. Therefore, Indian markets remain attractive over the next three to five years.
2. Optimism in the entire country have hit new high following victory of Narendra Modi led NDA in recent elections. How do you see new stable government benefiting the economy?
India is having a government with full majority for the first time in last 30 years. Thus, the expectation is that the Government will have much more freedom in framing and executing its policies and decisions as compared to many previous governments. Also, it is expected that the government will follow more pro-growth policies which focus on improving productivity and efficiency. If productivity of Indian economy improves, we can have higher economic growth with only moderate inflation, thus benefiting all sections of the economy.
3. Power, coal and oil & gas sectors are seen as biggest beneficiaries of pro-growth stance of Prime Minister Modi. How do you see outlook for these sectors?
We are an energy importing economy. Improvement in the domestic production of coal and Oil & Gas is required and this can boost our economic growth. Also there is scope for rationalizing pricing policies and reducing subsidies. If we follow proper policies, these sectors can attract large investments and improve our energy scenario.
4. What are your expectations from the NDA government's first Budget?
The budget should be pro-growth and focus on fiscal discipline. While we have reduced the fiscal deficit in the last two years, we need to reduce it in a more sustainable way, by having lower dependence on one time or volatile sources of non tax revenue such as divestments etc.
5. According to you, which sectors will likely to outperform or underperform in near term?
We expect domestic cyclicals sectors such as financials, industrials and consumer discretionary to outperform in an improving growth scenario. We are also positive on the IT sector as the growth prospects are good and valuations are reasonable. We are not so positive on consumer staples and global commodities.
6. What is your initial reaction on Raghuram Rajan's second bi-monthly monetary policy?
The monetary policy is consistent with RBI's stance of maintaining a balance between growth and inflation. RBI has kept key rates unchanged and has also stated that it is willing to follow a softer monetary policy if inflation falls on a more sustainable basis.
7. What is your advice to investors at this point in time?
Indian retail investors have very low exposure to equity. In the last five years, despite difficult market conditions, foreign investors have continuously invested in Indian equity markets whereas retail investors have not been participating in the market. We feel that the Indian markets have started a structural bull run. In the last few years, while we had a few bull runs, they all coincided with some central bank in developed world starting some sort of QE programme. The current bull run is based more on Indian economy beginning to address its key problems and the government following growth oriented economic policies. Valuations are reasonable and growth prospects are improving. Thus retail investors should increase their exposure to Indian equities using SIPs / STPs and use any volatility in the markets to invest larger amounts.