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9.5% GDP growth in FY22 achievable, above that will be difficult, says Satish Ramanathan of JM Financial

Sectors such as financial advisory, insurance look attractive from a long-term point of view, Ramanathan says

August 27, 2021 / 08:02 AM IST

Satish Ramanathan, Managing Director & Chief Investment Officer- Equity, JM Financial Asset Management, says despite various lockdown-like restrictions and shortages that the companies face, a 9.5 percent growth is achievable.

A high number would be difficult, as a sizable chunk of the service economy has been hit by the coronavirus, he says. So, a 9-9.5 percent GDP growth would be good news.

In an interview to Moneycontrol's Sunil Shankar Matkar, Ramanathan says investors should stick to their objective of long-term asset allocation across fixed income, equity and other asset classes as suggested by their financial planner. Edited excerpts:

The market is at a record high. Which are the key drivers? Do you think the rally will sustain? Do you expect a major correction in the coming months?

The Nifty continues to scale new highs, while midcap and smallcap indices have already experienced a pullback. The breadth of the market continues to be narrow and the advance-decline ratio suggests that markets are tentative.


While markets and economy are interrelated, they do not necessarily move together. From the Indian economy perspective, we believe that a significant amount of restructuring has taken place over the past few years, setting ground for a new cycle of consumption, capex and growth. The government has been prudent and tried avoiding being too populist and has actually raised its tax levels to fund capex and provide relief for Covid.

We believe that structurally all elements are in place for corporate performance to continue to improve from here on. Free cash flows have increased as well as debt levels have come down.

Benefits of lower interest rates are now trickling to midcap and smallcap companies as well and we are witnessing deleveraging by small companies as well. However, market valuations are at levels where there is no room for disappointments, and considering that there is a significant retail element in this rally, volatility is to be expected.

What should be the investor strategy now that the market is at a new high?

We recommend that investors stick to their objective of long-term asset allocation across fixed income and equity and other asset classes as suggested by their financial planner. We do not recommend altering weights in a significant manner.

Sure, there may be bouts of correction which may be used as an opportunity to increase equity allocation, but is it a time to sell midcaps and move it to large caps— the answer is on a structural basis—not now.

We recommend investors to continue to invest in a systematic manner either through SIPs or any other preferred route. Corrections can be either time-based or value-based and we reckon that it may be more time- based this time. Lump-sum investments can be considered when there are significant moves in the market or into value-based themes as and when the environment is right.

Which are the sectors that have yet to participate in the run? Should investors invest in those sectors now?

Almost all sectors have participated in this rally, which has extended over 16 months now. We have had several reasons for each of them moving up but the basic premise was this that Indian companies will see significant rise in pricing power and demand both internal and external. A lot of this has played out and we are now experiencing inflation in input costs eroding margins.

Further shortages, due to several reasons, have also caused output to drop leading to some earnings downgrades as well.

We will be interested in investing in long-term sustainable sectors with a long runway of growth. We find sectors such as financial advisory, insurance and other such sectors attractive from a long-term point of view.

The primary market has been quite active for more than a year now and a lot of companies have filed draft documents for IPOs in 2021. How much money will be raised through these offers in 2021 and 2022?

A healthy IPO market is the key to longer term vibrancy of capital markets. New businesses and entrepreneurs which re-define business are key to improving capital allocation efficiency. In that sense, we believe that IPO market which was not active for nearly a decade may come back and sustain.

Valuations may be debatable and there is a chance that one overpays during a frenzied market but that does not change the viability of the underlying business.

So as always, we need to do our homework before deciding on which company to invest in and know the underlying drivers of growth rather than using the IPO as a lottery.

Do you think the Indian economy can grow in double digits in FY22 against the RBI's growth forecast of 9.5 percent?

Given the various lockdowns and shortages that the companies face on several fronts, we believe that a 9.5 percent growth is achievable. To anticipate a number much high than this would be difficult, given that large parts of our service economy have been impacted. So, we are quite happy to have a 9-9.5 percent GDP growth this year.

What we need to know is if there is a further outbreak of Covid and the damages thereof. Our vaccination programme is proceeding smoothly without major hiccups and it is reasonable to assume that a significant portion of our population is covered with two doses by December 2021. This should lead to some sustainability of growth.

Warren Buffett celebrates his birthday on August 30. Which of his investment strategies you like the most?

There is a lot to learn from Warren Buffett's philosophy and style of investing but the one thing that impresses me most is—"never invest in a business you cannot understand". Simple as it seems, it is deeply profound. As you ask questions, a number of things start falling in place and the decision to buy or not to buy becomes clearer. Simplicity and common sense is often underrated in investing.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Aug 27, 2021 08:02 am
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