Sampath Reddy, chief investment officer of Bajaj Allianz Life Insurance, is a veteran of the company and manages funds worth Rs 54,000 crore. In an interview with
CNBC, he spoke at length about the volatile markets and its near-term future. He also gave out a few asset allocation tips for retail investors. Edited excerpts: TV18.com Market capitalisation worth Rs 5 lakh crore of BSE-listed companies have been eroded in the past six trading sessions. What is your view on the near-term future of the market, considering weak global cues? There are a lot of moving parts, which makes it difficult to estimate the impact on markets in the near term. There is the recent trade tension escalation between the US and China and possible impact on currencies from that (if China depreciates its currency), concerns of global growth slowdown, rise in crude oil prices in 2019, and of-course the impending general elections result—which may cause some volatility in markets in the short term (albeit it is more transient in nature).
However, we believe that the key determinant of the trajectory of markets going forward, will be how corporate earnings shape up in the coming quarters. Overall, we expect Nifty index corporate earnings growth to rise to around 18 percent in FY20, and that should help to drive the markets. Also, India stands relatively better positioned from a macro perspective despite the recent minor downgrade in GDP growth, in the context of the expected slowdown in global economy. However, if the quantum of the global slowdown is more severe than expected, then it will have an impact on Indian markets as well.
Due to the current volatile market conditions, what should investors do? What would be your advice to them?
Investors should stick to their asset allocation plan, as per their risk profile and investment horizon—and not get carried away much by short term market movements. We recommend investing systematically in the equity markets for investors. From a market-cap perspective, we still prefer large-caps, but have been recommending partial allocation to mid-caps over past few months—where we see select bottom-up opportunities.
Most sectoral indices are in the red in recent sessions. Would you advise buying defensive sectors now? If yes, what are the options?
Within defensive space, we are presently positive/overweight on the pharma sector, neutral on IT and underweight on the consumption (auto & FMCG) space.
For the pharma sector, the US generic business environment is improving--with pricing pressures stabilizing, and with most of the past US FDA related issues expected to be behind us now. Domestic business is expected to report steady double-digit growth after temporary setbacks (like GST, demonetization and FDC ban). Also, valuations for the sector are reasonable.
What do you have to say about the global markets' meltdown? Where do you see the global indices moving in the near-term?
As mentioned earlier, there are a lot of moving parts in the global environment, which are having an impact on global markets presently. The fact that some markets have seen a healthy recovery in 2019, maybe also causing some profit booking among investors recently.
It remains to be seen what impact the escalation in trade tension between the US and China will have on global economy, and if China will retaliate by depreciating its currency.
Also, the dovish stance by some major central banks around the world, and pick up in global liquidity has benefited emerging markets like India, in the context of some slowdown in DII (Domestic institutional investors) flows lately.
So the global monetary policy stance going forward coupled with global risk appetite, will also be a determinant of global liquidity and flows into emerging markets like India.
According to you, which sector is the safest one to bet?
From a sectoral perspective, we are presently positive/overweight on private banks, cement, capital goods, and pharma.
In the banking sector, credit growth is picking up, even though deposit growth lags credit growth—keeping the CD (credit to deposit) ratio at elevated levels, and this will make rate transmission more difficult. Retail demand remains robust and we are now seeing some pick-up in demand from corporates.
For capital goods sector, we are seeing a gradual recovery in the capex cycle and expect it to pick-up post the elections. While, cement earnings are likely to be strong led by healthy volume growth and recent price hikes.
Given the current market scenario, in what ratio, should one allocate funds to mutual funds and stocks?
For retail investors, who may not have the necessary investment expertise/experience or the time to track market developments, it would be more prudent to have higher allocation to a credible investment manager. Having allocation investment avenues like ULIPs / MFs (Mutual Funds) also helps one to diversify their portfolio.
Are debt-funds a safe investment tool at current market conditions?
The debt markets (and especially the NBFC and HFC space) have been facing a credit and liquidity crunch, since the IL&FS default last year. Even though things have improved relatively for some of the more prudent NBFCs/HFCs since September/October 2018, certain credits still remain under stress due to asset/liability mismatch and liquidity crunch—thereby keeping the credit risk elevated in the debt markets at this juncture.
Do you think investing in gold is a good option?
Investors can consider a partial allocation to gold, more as a hedge in their portfolio. For long term wealth creation, we don’t suggest a higher allocation to gold in the investment portfolio.
Expert Estimates is a series of interviews containing analysis and commentary on what’s moving the markets and outlook, among other things.