Sampath Reddy, CIO at Bajaj Allianz Life Insurance, said that the automobile sector may see a major technological shift by the Electrification efforts, pursued by the industry and backed by government incentives.
Reddy has over 20 years of experience in the investment management industry. He oversees total assets under management (AUM) of the company of over Rs.70, 000 crore which is a combination of equity assets and fixed income assets.
In an interview with Moneycontrol's Kshitij Anand, Reddy said that he is cautiously optimistic on markets, on potential unlock related earnings growth, and above-average valuations.
Q) Both Sensex, and Nifty50 hit a fresh record high on Friday. Where do you see markets in 2021?
A) Despite of the second wave of Covid, equity markets continue to do well with most of the stocks hitting a new high. Contrary to many expectations a year ago, corporate earnings have been much resilient to the Covid shock.
The Nifty50 companies, on aggregate, have delivered over 15 percent growth in FY21 despite of the shutdowns witnessed last year, and the earnings growth estimates for FY22 continue to be strong.
We believe that this has been the reason for stronger equity market performance. We are cautiously optimistic on markets, on potential unlock related earnings growth, and above-average valuations.
We expect markets to give modest returns in the current financial year.
Q) Which sector/stocks will fall in the category of disruptors?
A) We believe the Automobile sector may see a major technological shift by the Electrification efforts, pursued by the industry and backed by government incentives.
Large investments are already underway in the manufacturing of Electric vehicles and charging infrastructure. The renewable energy sector is also likely to do well due to the thrust on ESG in investing.
Technology platforms and digital marketplaces are emerging rapidly, and are likely to have an impact on a lot of traditional businesses.
Q) With markets trading at record highs what should be the strategy of investors? Should they wait for a dip to deploy money in stocks or mutual funds or be aggressive and add more money at these levels?
A) We recommend investors have a balanced asset allocation strategy, based on their future needs and risk profile.
Investors should avoid timing the market as it would be difficult to capture this. In spite of the recent rally in the market, we believe that long term investors would continue to do well even from current levels.
Q) Inflows into MFs for the third month is a positive sign for Indian markets which suggests that there is a new line of defence that has emerged in case FIIs plan to take some money out. Hence, our markets will not fall much compared to what we saw few years back. What are your views?
A) We have observed in the past that meaningful FII outflows have happened over short periods of time; thereby causing significant corrections in the markets, despite there being regular DII inflows.
Hence, we see the intensity of outflows as an important determinant in its impact on short-term market movements. Having said that, diversified market participation is always healthy over the long term and it is good to note the increased participation from domestic investors.
Q) What are the factors according to you that are fuelling the rally on D-Street?
A) Market rally, in current times, is largely fuelled by liquidity, followed by positive surprise to the earnings estimates. The central bankers across the globe have increased the liquidity by keeping interest rates low to withstand the impact of Covid.
Last calendar year, large global central banks ie. Federal Reserve, BoJ, ECB, and BoE, conducted asset purchases of ~9 trillion dollars, which has been the primary driver of recent equity rallies, worldwide.
Some of this measure has led to increased valuations for the equities. In addition to the liquidity, the current market rally is also on the back of continued expectations of strong earnings growth in FY22. Any disappointment to the earnings may impact the rally.
Q) Which sectors will lead the next leg of the rally on D-Street?
A) The current rally in equities has been broad-based with most of the sectors performing very well. There has been some rotation in performance in favour of the value stocks as well in this rally.
We see IT services as a potential market outperformer, basis upbeat commentaries by the company management, and accelerating the digital transition of businesses across the world.
We also like companies that are exporting goods and services, as the global economy is also on the recovery path. Commodity companies in the metals space have also been looking attractive given the sharp rise in metal prices.Disclaimer
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