Srinivas Rao Ravuri, CIO-Equities, PGIM India Mutual Fund said that stocks in the utilities, oil & gas sectors are trading at attractive valuations on metrics like P/E and P/B.
Ravuri has over 24 years of experience in Indian financial markets. In the past, he has worked with HDFC Asset Management Company, Motilal Oswal Securities, Edelweiss Capital and Securities Capital Investment.
In an interview with Moneycontrol's Kshitij Anand, Ravuri said that markets are at an all-time high, and there are concerns about economic growth, inflation, among others. So, at times like these, it makes sense to invest in parts to reduce volatility.
Edited excerpts:-
Q) Bulls remain in control of D-Street and every dip is getting bought into. What is your outlook on markets for the year 2021?
A) Equity markets have been highly resilient in recent times. Even at the peak of the 2nd pandemic wave, markets were looking beyond the crisis, which has turned out to be the right way of looking as things are under control now on the COVID front.
Though many states have announced lockdowns, this is more to restrict people’s movement, freight movement; however, the overall economic activity levels are significantly better than during last year’s lockdown.
The Reserve Bank of India (RBI) is projecting a 9.5% GDP growth for FY22. Corporate earnings are expected to remain robust, along with plenty of liquidity, and low-interest rates mean a positive outlook for equity markets.
After such a sharp rally, one should be prepared for corrections, but the overall outlook is positive.
Q) Which are the key risks the Indian market faces amid the Bull Run?
A) There are a number of risks that our markets face, and these include a) rise in interest rates in the US and subsequent FII outflows from India and other emerging markets, b) risk of COVD third wave, c) WPI Inflation has already touched double digits; this would put pressure on interest rates, economy, and markets d) trend in corporate earnings
Q) What is your take on RBI policy? How long can RBI keep interest rates low?
A) RBI & the Central government’s primary focus is reviving economic growth & controlling inflation. A lower interest rate is one key variable aimed at addressing growth as a lower interest rate would enable higher investments and lower interest costs for government and enterprises.
Globally also central banks are doing their best to see interest rates are lower to enable economic growth. So, we should be prepared to live in a lower interest regime unless things change dramatically.
Q) What is powering rally in capital goods, Utilities as well as oil & gas space? These 3 sectors were top sectoral gainers in May?
A) Two things are driving this rally. First, globally value stocks have rebounded in recent months after many years of underperformance when growth style investing has done extremely well.
Stocks in Utilities, Oil & gas sectors are trading at attractive valuations on metrics like P/E and P/B. Whereas capital goods rally on the hope of economic recovery and subsequent revival of the capex cycle in the country.
Q) What should be the strategy of investors at a time when markets are trading in an unchartered territory? Should they be put in a lump sum or in parts?
A) Markets are at an all-time high, and there are concerns about economic growth, inflation, and other concerns. So, at times like these, it makes sense to invest in parts to reduce volatility.
Q) Will crude above $70 or $80/bbl hurt the economy and markets? Which sectors are likely to get impacted the most?
A) Higher crude prices are negative for our economy as it leads to a)higher forex outflows b) inflationary impact as fuel is crucial raw material.
So, higher oil prices is bad for the economy and sector like Aviation are most impacted by higher crude prices
Q) Any contra trade with respect to sectors which you think could play in the next 6-12 months?
A) We remain positive on IT, healthcare and industrials. In terms of contra trade, recovery theme (as lockdowns are lifted, some sectors are likely to recover strongly), consumer spending is expected to rebound in industries like Travel, Tourism, and Entertainment, etc.
Q) Do you see demand revival by Diwali?
A) There is a very high probability of demand revival by Diwali as economic recovery would be underway. However, one needs to keep in mind that, unlike last time, when the fall in economic activity was more due to supply-side constraints, this time it is more due to demand-side constraints.
People who are hit by COVID have incurred huge costs on healthcare and, to that extent, lost spending power.
Disclaimer: The views and investment tips expressed by the 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.
