We are presently positive on private banks, cement and metals; neutral on IT and pharma; and underweight on auto and FMCG
We have a disciplined and bottom-up investment strategy, and with insurance/ULIPs being a long-term product, we have a long term orientation in our investment approach. Broadly, we follow a Growth at a Reasonable Price (GARP) investment philosophy, Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance, said in an interview with Moneycontrol’s Kshitij Anand.
Q: With volatility at 3-year high and election fever at its peak, do you see a likely selloff after the elections?
A: It is difficult to gauge the impact of elections on markets, but past experience shows that the impact is more transient and short-term in nature.
The markets may see some intermittent volatility but will move on to fundamental factors like corporate earnings, etc., which we believe will be one of the key drivers for markets going forward.
Q: After the recent rally, where do you see the pocket of opportunities?
A: After the recent rally, valuations (P/E ratio) are relatively elevated on trailing basis. However, forward P/E ratio for the benchmark Nifty index is still in fair valuation territory.
This is because the markets are pricing a healthy pick up in corporate earnings growth going forward, and our in-house estimate is of around 18 percent earnings growth for the Nifty in FY20.
From a sectoral perspective, we are presently positive on private banks, cement and metals; neutral on IT and pharma; and underweight on auto and FMCG.
We still prefer largecaps but have been recommending partial allocation to midcaps over the last few months, where we see select bottom-up opportunities.
Q: Even though there are macro concerns, what do you think is pushing markets higher?
A: The dovish stance by some major central banks around the world, and pick up in global liquidity has benefited emerging markets like India. India has seen strong FPI inflows and a relatively higher share of flows into peer emerging markets, over the past few months.
This has been helped by relatively stronger economic growth prospects for India, a relatively stable currency, and a higher ROE for the Indian markets.
The hope of pick-up in corporate earnings growth and stability /continuity in government is probably also helping to push the markets higher.
Q: What are the mistakes one should avoid especially when benchmark indices are trading near record highs?
A: Investors should not get carried away and stick to their asset allocation plan (as per their risk profile and investment horizon). Also, they should continue to invest systematically in equities.
Q: What will decide the direction for markets in the near term?
A: We mentioned corporate earnings earlier, and economic growth is another factor.
Even though we have seen some minor downward revision in GDP growth for FY19 and FY20, India is still projected to be one of the fastest growing major economies for the next two years.
However, an eye needs to be kept on the magnitude of the expected global growth slowdown, as a more severe one will have an impact on India as well.
Crude is another factor to watch out for, with India being a large net importer of crude oil. The crude prices have been rising so far in 2019, which is concerning.
Rising crude will affect the current account deficit, rupee, and also to some extent inflation.
Q: What has been your portfolio strategy?
A: We have a disciplined and bottom-up investment strategy, and with insurance/ULIPs being a long term product, we have a longer-term orientation in our investment approach. Broadly, we follow a Growth at a Reasonable Price (GARP) investment philosophy.
We are presently sitting on moderate cash in our equity portfolios in case of any volatility and will look to deploy the same at the opportune time.
Q: Do you think FII momentum will continue and if we see Modi back in power?
A: The monetary policy stance of global central banks and global risk appetite will be the key determinants of foreign portfolio flows going forward. A stable government and continuity in reforms will also be beneficial.
However, we don’t think we will see the same quantum or run-rate of foreign inflows going forward that we have seen over the past couple of months.
Q: Global markets are also trading near highs. Does it make sense to invest in funds which have global exposure to diversify the portfolio?
A: Yes, the valuation of certain markets are also elevated. International funds are primarily available in the mutual fund space and not in the insurance space.
Investors can consider a partial allocation to global funds to diversify their portfolio, but they should not solely look at past returns as the guiding factor and should also bear in mind that global funds bear currency risk.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.