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DAILY VOICE | India needs 2nd stage of reforms to kick-start investment cycle: Rahul Singh of Tata MF

All things considered, the market appears to be around its fair valuation, hence the returns from equities will now track medium-term earnings performance, beyond the current fiscal year, says Singh.

July 22, 2021 / 07:24 AM IST

Rahul Singh, CIO- Equities, Tata Mutual Fund says that India needs a second stage of reforms to kick-start the investment cycle which has now become key to sustain growth at a higher rate.

Singh is a market veteran of over 25 years. He joined Tata Asset Management in October 2018 as CIO-Equities, leading the fund management and equity research teams.

In an interview with Moneycontrol's Kshitij Anand, Singh said the market appears to be around its fair valuation, hence the returns from equities will now track medium-term earnings performance, beyond the current fiscal year. Edited excerpts:

Q) Market hit a fresh record high in H12021 and the momentum continued at the starting of H22021 as well. What is driving markets – is it FOMO, TINA or plain liquidity?

A) Headline valuations are at a 10-15% premium to the 10-Year historical range but are supported by the lower bond yields in comparison to what we have witnessed in the last decade.

In addition, India’s premium to other emerging markets (EMs), while approaching the higher end now, is supported by the pro-growth and pro-reform stance of the government and fiscal/monetary policy.


All things considered, the market appears to be around its fair valuation, hence the returns from equities will now track medium-term earnings performance, beyond the current fiscal year.

There is a cushion from the bottom-up corporate earnings which have been driven by multiple sectors this time. Inflation risk and how that plays out into bond yields remain the biggest risk to equity valuations since as mentioned earlier the premium valuations have been partly supported by lower bond yields (the other contributors being bottom-up earnings and pro-reform policies).

Over the medium term, any move to control bond yields despite inflation could be advantageous to emerging market currencies including India leading to liquidity flows to EMs.

India’s standing within the EMs will depend on the earnings outlook and government policy. We are indifferent between the large and midcaps but certain pockets of small caps are looking overheated now.

Q) You have launched Business Cycle Fund. Tell us more about it and what is strategy you are following?

A) The fund will follow a macro investing approach investment strategy and focus on sector allocation and concentration rather than bottom-up stock selection – which is the primary style for other diversified equity funds.

We believe that Business Cycles Fund will become an important category in the years to come as cycles are becoming shorter and more unpredictable thanks to extraordinary fiscal/monetary interventions and external events – both domestic and global.

The portfolio will therefore be characterized by a lesser number of sectors, and the market capitalization mix will depend on the stage of the economic cycle that we are in.

In addition to the macro-economic cycles, industry-specific dynamics also results in opportunities to create alpha and the fund will also focus on those opportunities.

Q) Manmohan Singh’s July 24, 1991, budget speech is considered as the harbinger of economic reforms in India. What is your take on that? Do you think the best of the reform years are already behind us and what this means for investors?

A) India needs a second stage of reforms to kick start the investment cycle which has now become the key to sustain growth at a higher rate. Reduction in corporate tax rates was a big step and the success of PLI is a part of that.

The countercyclical fiscal policy has been a big change to push for growth. Lastly, Government’s seriousness in pursuing PSU privatization is not only important to raise resources for fiscal spending but also a key reform signal to the foreign investors.

Q) Which sectors are likely to take lead in the second half of the year 2021? Where is the smart money moving?

A) Our investment portfolio is more diversified today than 12 months back as we see multiple drivers of earnings recovery.

There are also signs of this recovery period translating to an expansionary phase led by revival in the investment cycle – both in the private sector as well as households (real estate). The portfolios, therefore, are tilted towards a cyclical recovery.

Q) Have you spotted any under-owned or unloved stocks that could probably make a comeback in the next few years?

A) Capex cycle recovery could be at an interesting stage as we see revival across sectors led by improvement in the balance sheet and cash flows of the corporates for example in Metals & Mining.

In addition, the success of the PLI scheme and the driver towards automation/robotics is also driving the capex.

Industrials, capital goods, and manufacturing could therefore emerge as an important sector in the next 1-2 years.

There is also a new found seriousness among the government to monetise their assets which includes privatization as one of the options while asset divestments are also on the cards.

In addition, certain sectors like commodities are having a cyclical upturn while certain sectors like utilities are trying to overcome the ESG overhand through a push towards renewables.

We believe that PSUs can therefore do well although the effort should be to focus on companies or sectors within that segment that have either earning drivers or valuation catalysts.

Q) What is your call on IT space – your pecking order between Infosys, TCS, Wipro, and MindTree?

A) IT services is benefiting from a significant spending wave towards digitalization of businesses and all the Indian companies are well-positioned to capitalize on the same as they had been investing in building those capabilities pre-Covid.

While there are supply-side pressures emerging in terms of wage hikes, subcontracting, and attrition, if the deal wins momentum continues, the industry might be in a position to pass it through in pricing in the medium term.

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.
Kshitij Anand is the Editor Markets at Moneycontrol.

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