Ajit Banerjee, Chief Investment Officer at Shriram Life Insurance, believes the overall outlook for the market is positive for FY22 in the backdrop of strong signs of global and domestic recovery.
Banerjee, an MBA, has over 27 years of experience across various sectors in the fields of investments, financial control, management, accounting, etc. Since 2006, he has been in the insurance sector.
Prior to Shriram, he worked as chief investment officer at Bharati Axa.
Assessing the current market situation, he said, in case the Indian bond yields start moving up faster-than-expected mirroring global bond yields, especially US markets, then we can expect some reallocation of asset mix leading to profit booking and thus some consolidation in the market would be normal.
Here are edited excerpts from his interview with Moneycontrol's Sunil Shankar Matkar:
Q: Market had a strong close in FY21 with nearly 70 percent jump in the benchmark index. Do you expect a similar trend in FY22?
In the FY20-21 investors' wealth grew massively by Rs 90,82,057.95 crore driven by an extraordinary rally in the equity market, where the benchmark Sensex jumped 68 percent. We are now witnessing a consolidation phase in the market after some consecutive months of rally. The overall outlook for the market remains positive for FY22 in the backdrop of strong signs of global and domestic recovery being witnessed, barring a few European economies.
The Union Budget has given a very clear direction on the government's roadmap to the economic recovery. The huge outlay in infrastructure sector, expanding PLI schemes, housing sectors reforms would certainly create a positive cascading effect on economy. Hence, we can certainly expect a sustained overall demand level aided by the increase in nation-wide vaccination drive to the wider masses bolstering a positive sentiment across.
Having said that, we need to be also mindful of the recent surge of COVID-19 cases in India especially in those states which play a significant role in contributing to the GDP growth of the country is certainly a matter of concern. Any news on fresh lockdown would create a negative sentiment in the market.
Some shift in the asset allocation is bound to happen in case there is rise in the bond yields and thus some profit booking would continue to happen going forward depending upon the risk appetite of the investor.
Q: What could be leading factors that can support the market in FY22, and what are the risks?
The markets would find positive support from the fact that the drivers for economic growth, such as infrastructure investment and real estate sales are in place. The pace of the vaccination drive is gaining momentum with the government announcing mass vaccination for population above the age group of 45 years. Overall, health infrastructure appears to be better prepared to deal with surge in COVID-19 cases that we are witnessing now.
This obviously is a big positive news for the market. The market would certainly be further aided by the continued inflow of the FII (foreign institutional investors) and FPI (foreign portfolio investors) money and global surplus liquidity situation.
As globally the health-driven crisis isn't over, and India being no exception to that, so in case if situation aggravates further with the existing machineries failing to contain the spread forcing a nationwide lockdown again then that will certainly act as a big deterrent to the overall economy of the country and equity markets cannot remain insulated from that.
We are also seeing global economies recovering which is also leading to bond yields inching up and there is a pause in interest rate cuts. In case the bond yields start moving up faster-than-expected mirroring global bond yields, especially US markets, then we can expect some reallocation of asset mix of investors leading to profit booking and thus some consolidation in the market would be normal.
The capex plans and proposals, which have been announced by the government, as well as the extension of the PLI schemes - if all that fails to take off then we can expect negative impact on the overall economy which will also have a bearing on the linked sectors of the market.
Q: What are your broad expectations from the upcoming Monetary Policy Committee (MPC) meeting?
Globally, we are witnessing that central banks are taking an accommodative stance and have committed to keeping rates low for some more time. The Governor of Reserve Bank of India has made it very clear that RBI would ensure availability of abundant liquidity at low cost to jumpstart the economy. Hence in all probability MPC would keep the rates intact with an accommodative stance. When the economy is showing early signs of revival RBI and the MPC would ensure that growth momentum is maintained and it would facilitate the same by taking measures for effective transmission of the cheap credit.
We need to watch out for the MPC's stand on their view on the present inflation level and if there is any indication on the time frame by which liquidity may start getting tightened and how long it would like to maintain the accommodative stance taken.
Q: Do you expect better-than-expected earnings in March quarter as well like previous quarters? Also do you expect the trend of more upgrades than downgrades to continue after March quarter earnings?
March quarter earnings would continue to reflect better results beating market estimates. However one needs to be watchful on the results of the banks and NBFCs in view of the pronouncements of Apex court due to possible reversal of compound interest for the moratorium period if any.
Going forward into FY22 whilst the demand would continue to see an uptick with the expected recovery in the economy especially in the real economy sectors but the manufacturing sector may see some cost pressures with increasing raw material costs unless they are able to pass it on to their consumers. On an overall the markets are expected to deliver sound numbers.
Q: The US bond yields have gradually been moving northwards amid likely recovery in the US economy? What does it mean for Indian equity markets and what should be your reading with respect to equity market and FII flow in emerging markets including India?
In the US markets yields initially rose on ongoing hopes for a robust and swift economic recovery gained ground. Wider access to COVID-19 vaccines announced by US President Joe Biden and other state governments is giving a sense that the end of a devastating pandemic is in sight. Biden said 90 percent of the US population will be eligible for the coronavirus vaccine by April. Investors anticipate an economic growth boost from $1.9 trillion fiscal relief passed under the Biden administration and widening vaccine distributions.
Global fixed income markets including India would certainly have a mirroring effect in its debt market, although the magnitude of the rise may not be the same. Reserve Bank through its bouquet of conventional and non-conventional measures would still try to contain the rate hike controlled to the extent which it would feel comfortable. This however cannot rule out some further hike in bond yields in Indian fixed income market which would in turn lead to reallocation of some assets from equity to debt market. But this impact may not be very significant in FY22 and may not happen immediately as we step into the new financial year.
With the fiscal relief package made available in US we can continue to expect receiving FII inflow in the equity market till such times Indian equity market continue to perform and meet the investors return expectations.
Q: What are the key sectors that one should add or continue holding in portfolio for FY22 and what are the reasons behind it?
As the economy is on its path to revival though a bit uneven recoveries seen so far, still in these periods of recovery industrial sector stocks, infrastructure sector companies, housing sector and building materials as well as automobile sector and cyclical sectors have a direct positive correlation with the upswing in the capital expenditure levels and expected economic revival.
After the apex courts pronouncement on reversal of interest compounding during the moratorium period the Q4FY21 results of Banks and NBFCs would be interesting to watch and better placed Banks and NBFCs would be potentially outperforming the market in the long run as in the economic revival and growth phase Banks and NBFCs register an all-round growth.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.