Sachin Bajaj, the Executive Vice President & Head–Investments at Max Life Insurance Company, said the real estate sector is in the middle of multi-year upcycle as the debt has comes down and corporate governance.
Bajaj, who has over 20 years of experience in fund management and banking, told Moneycontrol in an interview that oil prices remaining steady after Iran’s strike on Israel showed that geopolitical risk premium has been priced in but risk arising from further escalation still exists. Edited excerpts:
Do you think the West Asia crisis is not a big risk for the market and most of the news has been priced in?
Post the developments over the previous weekend, there was limited impact on markets on last Monday. Oil prices did not react adversely to Iran’s attack on Israel during the time. This suggests large part of geopolitical risk premium was already priced in.
Key players in the Middle East understand that cost of escalating the conflict outweigh the potential benefits. Hence, we don’t expect any extreme market reaction to current situation in Middle East. However, risk of further escalation still exists. If that happens, markets will react adversely.
Which are the key risks for the market?
Strong growth data and higher inflation prints are making global central banks cautious, which could mean delayed policy rate cuts this year. In addition, any deterioration in global geopolitical scenario like escalation in Israel–Iran conflict could dampen the market sentiment. Elevated crude prices and potential rise in other commodity prices will start to hurt margins and lead to higher inflation, thus further delaying interest rate cuts.
Reversal of FPI flows because of the dollar index going up or global risk-off trade will be another dampener. Monsoons are another important factor to watch for rural consumption recovery.
Should one still stay away from export-facing companies or is it time to add?
India is gradually emerging as a manufacturing hub across various industries. We are benefitting from both China plus one and Europe plus one strategy being followed by global players. It is a long-term structural shift in the global supply chain and is unlikely to be influenced by short-term volatilities.
Accordingly, Indian companies are also investing in boosting their human capital, technical know-how and manufacturing capabilities. Over the long-term, this is bound to create value for shareholders.
Do you believe that largecaps can outperform mid and smallcaps in FY25, as several experts have been saying?
In FY24, while the Nifty was up 29 percent, midcap and smallcap indices were up 60 percent and 70 percent, respectively. After such a large outperformance, near-term volatility in mid and small caps and mean reversal towards largecaps cannot be ruled out.
Within smallcaps, where valuations have run up way ahead of fundamentals and where earnings visibility is limited, can be avoided. However, there are many mid and small-cap companies with a strong business profile, presence in attractive industries and good corporate governance. One can remain invested in them from a long-term perspective.
Are you increasing exposure to the real estate space?
Real estate has been one of the best performing sectors during the last year. Over the past few years, balance sheet debt levels have come down and corporate governance has improved. Regulatory environment is also now more conducive from ease of doing business perspective.
We believe real estate is in the midst of multi-year upcycle. We are positive on the sector and continue to have real estate companies in our portfolios.
Do you expect rural demand to make a strong come back in the second half of FY25? Is this the right time to bet on the FMCG space?
Rural demand has started showing early signs of nascent recovery. While consumer discretionary demand is relatively holding on, it is consumer staples which was showing signs of demand pressure. Full recovery will be influenced by various factors.
Quantum and distribution of monsoon across India will play an important role. Also, elevated oil prices and rise in other commodity prices will make it difficult for FMCG companies to pass on price benefits to boost demand. Investors can remain invested in high-quality companies with strong balance sheet, superior earnings growth, and good corporate governance.
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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