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Bajaj Allianz Life Insurance CIO Sampath Reddy on investment hypothesis, best sectors to invest in 2020 and more

Updated : December 16, 2019 03:04 PM IST

FMCG companies are facing issues such as raw material pressure and slowdown in growth, while valuations are running quite high.

Chemicals as a sector should do well given that few of the Indian companies have increased their market share in the specialty segment.

For a good hypothesis to play out, investors should maintain an investment horizon of over 5 years, says Sampath Reddy, chief investment officer of Bajaj Allianz Life Insurance.

In an exclusive interview with CNBCTV18.com, Reddy spoke at length about the markets and ULIPs. An industry veteran who manages funds worth Rs 54,000 crore, he remains positive on private banks.

Edited excerpts from the interview:

What are the mistakes investors should avoid in the next year to stay away from a volatile market?

Leveraging is a common mistake that one should avoid. The allocation of money should be done with at least a 5-year horizon. So far quality names have done exceptionally well and have outperformed broad markets, while trading at all-time high valuations. There is a strong likelihood of time/price correction in these stocks and sectors and investors should be wary of what they are buying and how much are they paying for it.

Typically, what investment horizon should investors look at?

For a good investment hypothesis to play out, investors should maintain an investment horizon of over 5 years. During this time, investors should constantly test their hypothesis based on the macro and company-specific data points released periodically.

Are ULIPs a good bet for long-term investment horizon?

ULIPs are a long-term financial product providing life cover and an avenue for wealth creation. Historical data shows that longer the investment period in equities, lower the volatility in returns and chances of any negative returns, and also -- equity is an effective asset class in wealth creation (through compounding and beating inflation over the long term. Many ULIP schemes also offer free-switching options between equity, debt, liquid and balanced products, which provides flexibility to investors.

Would you suggest investing in midcaps and small caps to generate better returns since large caps are available only at rich valuation at present?

Over the last two years, the mid cap and small cap stocks have underperformed the large cap stocks and a lot of them are currently attractively valued. Select mid and small cap stocks are likely to generate better returns than large caps. We are positive on a few sectors and stocks in the capital goods, auto ancillaries, pharmaceuticals, chemicals and NBFC space.

There are signs of cooling-off in some blue chips and PSU banks. Would you say it’s a normal correction?

Among the blue chips, FMCG is a sector that has seen some cool off along with some of the capital goods and infrastructure-led companies. FMCG companies are facing issues such as raw material pressure and slowdown in growth, while valuations are running quite high. FMCG sector is trading at the peak margins and peak valuations as well and we expect a period of weak returns in the quarters ahead. Infra and capital goods also are likely to face issues given the weak fisc. A lot of the PSU banks have been underperforming markets, or in fact, giving negative returns for over 10 years now and we don’t foresee PSU banks outperforming the broad markets over the long term.

Which sector, according to you, will continue to give consistent returns even next year?

Large private sector banks are well-positioned to give healthy returns over the next year. We also expect to see the pharmaceutical sector to do well in the next year.

What are your views on niche sectors such as chemicals, hospitals and footwear, which have given a good return this year? Would you recommend any of the stocks from these sectors to be added to the portfolio?

Chemicals as a sector should do well given that few of the Indian companies have increased their market share in the specialty segment. Chinese companies are facing issues from Chinese authorities with respect to pollution, which benefits Indian companies to that extent. Also, the recent US-China trade war has emphasised the need for geographic diversification of vendors away from China and should benefit Indian chemical manufacturers.

Bajaj Allianz Life Insurance CIO Sampath Reddy on investment hypothesis, best sectors to invest in 2020 and more

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