Reforms Mandate Crucial For Growth

J Venkatesan, Fund Manager – Equity, Sundaram Mutual Fund says that with a new government due to come in, there is a pressing need for new measures to facilitate ease of business and give a breath of life to the country's investment climate

Where do you see the Sensex till Diwali 2014? 

We normally do not give any specific index number projection. Having said this, we feel that by the time the next Diwali arrives, we would have seen the new government in place. We also firmly believe that the political risks are overstated in India, and hence, to that extent, the new government would take over the reforms mandate to put growth firmly back on track. Remember that in the recent past, the government has undertaken the strongest reforms in the country. There is stability in the rupee now. 

We hope that the fiscal deficit target would be met. We are confident that our economy and our stock market would get positively impacted by growth in the US. There could be initial flows from EMs to DMs, but as growth gets the risk-on trades back, we may see the flows building up for India as well. Hence, overall we see a stronger Sensex, maybe a new lifetime high for the market by next year. 

What are the major triggers that you are looking forward to in the next Samvat? 

Any significant improvement on the external front with CAD falling, crude breaking below USD 100 (the ongoing US-Iran negotiations could trigger that) and rupee strengthening below the 60 level could provide triggers for the market to move up. Any significant surprise to the growth numbers following the good monsoons could also provide a trigger, as most of the economists still see a GDP growth number of around 4.8 per cent for FY14. Any strong sense that the new government will push for reforms aggressively and improve the investment climate would also serve as a trigger. 

What is your take on the present macro-economic environment of the country, and how soon do you see it improving?

We do expect the repo rate to move up by 25 basis points in the next six months or so. But we are basically positive that in FY15 we would see inflation coming down, the rate reduction cycle starting albeit in a small way, economic and earnings growth to be better than in FY14, the investment cycle picking up, an improved global scenario, and hopefully, the new government doing the right things.

With a new government slated to come in soon, do you foresee any significant changes in the investment climate?

Unless one gets to see the broad contours of the new government, the private sector capex may not happen. There are a few things one should look out for. First, many infrastructure and other projects would not be viable at the current interest rates, and hence, the interest rates in the system have to come down. Secondly, unless proper resolution happens for the existing projects on the ground to take off, new projects are hard to think of. Third, business confidence should be back in right earnest. Fourth, the NPL issues impacting the banking system has choked the cash flows and unnerved the lenders. That needs to get better. So, a lot of measures in terms of ease of doing business, getting environmental clearances, etc. would go a long way in giving a breath of life to the investment climate in the country.

Which are the sectors or stocks that you are betting upon for the next one year? 

We continue to remain defensive in our portfolios. We like the IT, Pharma, Telecom and Consumer staples, and are avoiding Materials, as also highly leveraged companies. 

What are your suggestions for retail investors keeping in mind the current market scenario? 

The market would continue to remain volatile. Given the fact that it has been consolidating for the last five years or so, the valuations have not been aggressive and global and Indian growth is expected to come back, equities as an asset class would deliver better returns in the medium term. Hence, investors should use this volatile phase to invest through SIPs