In a recent interview with Moneycontrol, G Pradeepkumar, CEO of Union Asset Management Company, said that the Nifty50 is currently trading at a moderate premium to fair value. Given the decent growth expected in this fair value, equity markets seem like an attractive asset class at the moment.
The IMF has projected that India will grow faster than China. "Given the robust growth that we witnessed in Q4 of FY23, there is every reason to believe that this will indeed be the case," he says.
Pradeepkumar, a veteran with 30 years of professional experience, is bullish on the consumer discretionary sector. "With our nominal GDP likely to grow at 10 percent to 11 percent and our population growing at 1 percent, we can expect an average Indian’s per capita income to rise by 9 percent to 10 percent annually," he says.
Q: Is the monsoon critical for change in policy stance by the RBI?
Monsoon is an important factor for the Indian economy. Although the share of agriculture in the economy has come down to about 20 percent from the levels of about 42 percent about 50 years ago, it accounts for about 42 percent of the workforce and has a reasonably strong influence on rural consumption, food inflation, etc.
Hence, a normal monsoon would go a long way towards boosting GDP growth. In turn, that would give more comfort to RBI in formulating the monetary policy.
Q: Will the rate cut be possible for RBI by the end of 2023 or FY24?
Our best estimate is that the rate cuts could start in Q4 of FY24. We expect RBI to be guided by data and they would probably wait for favourable data on inflation before cutting rates.
Q: Is the Monetary Policy Committee looking cautious?
Yes, while there is a fair amount of optimism in the policy statement, RBI also seems clear that they are not taking their eyes off the inflation target of 4 percent. To that extent, we are sensing cautious optimism with the Monetary Policy Committee.
Q: Are you cautious about the equity market after the rally since April?
We follow the Fair Value approach for valuation and based on our internal research, Nifty 50 is currently trading at a moderate premium to fair value. Given the decent growth expected in this fair value, we find equity markets an attractive asset class at the moment.
In the near term, (1) Corporate India’s business outlook, (2) Government’s continued focus on capital expenditure and (3) Our economy’s stronger growth potential keeps us positive. We are, however, closely watching for any risk that can emanate from (1) Ongoing geo-political events in Europe and (2) Sharper-than-expected economic slowdown in the developed nations.
Q: Are the new age companies looking attractive after these companies focussing more on profitability?
Any business needs to be commercially viable which means that it has to generate profits at some stage. During the period of excess liquidity which resulted from the easy money policies adopted by most of the central banks across the world, many start-ups had adopted a policy of aggressive growth with significant cash burn.
With central banks tightening the supply of money, the days of easy money are over. This probably has forced many such new-age companies to focus more on profitability. This certainly would improve their intrinsic fair value and make them relatively more attractive from an investment point of view.
Q: Are you betting big on consumption themes?
Despite being the 5th largest, the Indian economy is likely to be the 17th fastest-growing economy in the world. Private consumption is expected to play a key role in driving this growth. With our nominal GDP likely to grow at 10 percent to 11 percent and our population growing at 1 percent, we can expect an average Indian’s per capita income to rise by 9 percent to 10 percent annually.
This additional income will engender spending in consumer discretionary areas, like organized jewellery, branded apparel, quick service restaurants, consumer electronics, etc. Hence, we are bullish on the consumer discretionary sector.
Q: Will India continue to outperform China in the coming quarters?
The IMF has projected that India will grow faster than China. Given the robust growth that we witnessed in Q4 of FY23, there is every reason to believe that this will indeed be the case.
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.
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