Daily Voice: Banking sector is well positioned to drive credit growth; caution on export linked sectors, says this fund manager

While it is true that India trades at a substantial premium to China, what we track more closely are relative valuations to the entire emerging market basket. This might be more relevant as we compete for foreign institutional flows with all these markets. Even on this metric, our current valuation premiums are at the higher end compared to the past. This is a reflection of the strong economic and earnings growth delivered by the country and the outlook for the same.

Pre-election factors could have also played a role in the recent run-up. Overall, high valuations do suggest a fair bit of optimism in markets and could drive some moderation in return expectations in the near term.

Also read: IndiGo co-founder Rakesh Gangwal likely to sell higher stake of 5.8%, looks to raise Rs 6,600 cr

Do you expect a significant increase in FII flow to India in the next financial year?

Foreign institutional flows are inherently volatile in the short term. However, over time we have seen that India has been incrementally garnering a higher share of flows aided by the rising size of the economy and hence market capitalization. We expect this trend to sustain due to India’s rising share in the global economy and the diversified nature of the listed companies across multiple sectors which makes it an attractive market for stock picking.

Which are the sectors on your radar for FY25?

Multiple domestic segments have seen improvement in outlook over the past 2-3 years. We are notably enthused by the broad-based recovery seen in the investment cycle which has implications for multiple sectors including financials, infrastructure, capital goods, logistics, etc.

Real estate cycle recovery and thrust on manufacturing also bode well for a large number of sub-sectors that derive growth from the same. Healthcare continues to show good traction both on the domestic and export front.

Also read: Disney CEO Bob Iger says India merger deal with Reliance is ‘best of both worlds’

We remain a bit cautious on export-linked sectors, specifically those where we have a high market share. While domestic consumption remains weak, notably in the mass segment, we remain on the lookout for insipient signs of demand recovery as the structural tailwinds remain robust.

Are you bullish on the entire banking sector given the attractive valuations?

Banking is a core sector of the economy, and its health has implications for the overall well-being of the economy. We find the sector well positioned in the current cycle given the strong balance sheet and capitalization to drive credit growth.

The valuations too appear reasonable in the context of overall market valuations and relative to their history.

Which strategies and elements contribute to the performance of the HDFC Multi Asset Fund?

Multi-asset funds seek to improve the investor experience by reducing volatility through exposure to multiple poorly correlated or negatively correlated asset classes. HDFC Multi-Asset fund is a diversified offering with exposures primarily spread across domestic equities, fixed income and gold along with some REIT (real estate investment trust) exposure.

The asset allocation decisions are framework-driven. The framework largely emphasises counter-cyclicality by taking higher exposures to more attractively valued asset classes at any point in time. The fund also seeks to add value through active security selection within the equity and debt portfolios.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.