Asset Allocation Offers The Best Opportunity To Balance Risk And Reward
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What is your take on the current investment climate of the country?
We believe the situation has improved aft er the formation of a majority-led Government at the Centre. This may lead to a more encouraging environment for the investments and may lead to the beginning of a new cycle.
What is your outlook for the equity markets for this fiscal?
We remain upbeat on Indian equities on account of a number of factors like improving macros (fiscal/current account deficit, lower oil prices, and gradual decline in inflation) and the government’s thrust on reviving the investment cycle. This should lead to better earnings growth for the corporate sector and in driving valuation re-rating across many businesses.
Which are the global cues that you are looking forward to?
Amidst the current mixed global growth environment (US growing better while the European Union region is facing growth challenges), we believe India will remain an attractive investment destination given the alternatives and the challenges facing emerging markets in general. US interest rates also appear to be on hold and we believe that no surprises will be sprung in the recent future.
What is your take on the interest rate front?
Given improving macro-economic data and expectation of a gradual decline in inflation, slower credit off -take and high bank liquidity, we expect a cut in interest rate cycle to begin sooner than anticipated by the market.
Do you think that the RBI will move ahead with rate cuts in this fiscal?
This seems possible. If not, then it is expected to happen in the early part of next fiscal.
Do you see the GDP of the country reviving any soon and what are the reasons that you attribute for the same?
GDP growth in the past few years witnessed issues partly due to lack of policy initiatives that hit the investment cycle and in the lack of gross capital formation in the country. This was in addition to high interest rates and inflation that negatively impacted growth. We expect GDP growth to have bottomed and going forward expect revival driven by reforms initiative, regulatory clarity (like coal linkage, land acquisition or faster environment approvals) and lower interest/inflation factors.
What is your take on the present valuations of the India markets?
Present valuations, despite the market rally, are close to long term average multiples of about 16x and appear reasonable. It does not signify that we have moved to any expensive orbit as yet. As earnings accelerate and growth picks up, broad market multiples could get re-rated. Th is could lead to markets trading at even cheaper valuations.
What are the triggers that you are looking forward to with regard to the markets?
The key triggers could be sustained improvement in macro-economic variables (like deficits/interest rates/inflation), revival of investment/corporate capital expenditure cycle led by government’s policy initiatives. This will eventually trickle down to better earnings growth for corporate businesses and are triggers for market to sustain this bull-run.
What are the sectors that you are currently betting on, and in which areas should investors take caution?
We are positive on industrials, auto ancillary, banking, agro and specialty chemicals, logistics and pharmaceuticals. We are cautious on global commodities due to slowdown in global demand and consumer staples due to rich valuations.
What advice would you like to give retail investors at this juncture?
We have been and continue to be of the view that investors should make allocations in keeping with their risk appetite and investment horizon. We also believe that asset allocation offers the best opportunity to balance risk and reward. The recent run up in the equity market is well supported by positive investor sentiments and macro data. Markets are likely to sustain the uptick going ahead. Investors may therefore consider appropriate allocation in equities given their risk appetite with an investment horizon of over 5 years.