We don’t believe that the government will present a populist budget and we see a continuation of the fiscal prudence displayed by this dispensation so far, Prasun Gajri, Chief Investment Officer of HDFC Life, said in an interview to Moneycontrol.
It has been a splendid run for markets throughout 2017. What are your expectations for 2018? Any big events which could derail the equity rally or will market participants be in a wait and watch mode ahead of the general elections?
We believe that equities continue to be attractive as we step into 2018. We expect the elusive earnings growth to materialise during 2018. Overall economic growth should also recover from the lows of demonetisation and GST-led interruption.
We expect to see the bad asset issue in the banking sector also getting resolved during the year. This is the backdrop of strong global growth and an uptick in global trade.
While the market may have done well in 2017, all these factors should make 2018 too an attractive year for equity investors.
The key risks we run are more than expected monetary tightening in developed economies, further upmove in crude prices and politics driven uncertainty.
The September quarter results were not that bad, in fact, there were more positive surprises than disappointments. Do you think we could see double-digit growth in FY19?
The second quarter results surprised positively although against the muted expectations. We believe this is a harbinger of improved earnings growth in the coming quarters. We expect to see double-digit earnings growth in 2019.
The consensus expectations are for growth in the high teens in 2019. However, it is too early to take a call if those numbers will be met.
Work on Modi Sarkar's last full Budget has already begun. What are your expectations from the big event and do you think we will see a populist budget this time around?
We do not believe that the government will present a populist budget. This government has been prudent about fiscal spending so far and we believe that trend will continue.
However, it is possible that the pace of consolidation may differ from what was presented earlier. This will largely be led by bank recapitalisation and the teething issues related to GST implementation.
What would you have done if you were the finance minister? What would be on your priority list?
My first priority would be to ensure that the thrust on government capex and infrastructure spend continues. I would also want to focus on how the private capex can be revived.
I would also want to ensure that the bad asset resolution and the bank recapitalisation process which is underway is completed within the expected timelines and any challenges which come up are promptly dealt with.
Among others, the priorities would be to focus on reviving exports growth and taking further steps in generating long-term financial savings.
Any sectors which are looking attractive or a possible play in 2018-19?
We continue to be positive on financial services both on retail and corporate banks. We also remain overweight on consumer discretionary space, and stocks related to higher infra spend and metals.
What is your call on PSU banks? There are a lot of policy measures initiated by the government but there are a lot of moving parts to the story as to how things will shape up eventually...
The current resolution process which is underway and the bank recapitalisation has gone a long way in ensuring that interest is revived in PSU banks and they have rallied based on the same.
Going forward, we will need to get clarity on how the government wants to distribute the capital to these banks and what kind of consolidation and reforms the government unveils.
In the medium to long term, in our view the larger PSU Banks will do well but some of the smaller PSU banks will find it difficult to face competitive pressures even if they have the capital.
Equity truly outsmarted every other asset class but do you think that the outperformance will continue in 2018?
Given that real estate is still subdued, there is no imminent trigger in sight for gold prices and the interest rate cut cycle has ended, we do think that equity will continue to be the best-performing asset class in 2018 as well.
What is your call on markets for the next one year or December 2018?
We believe that equity markets can generate double-digit returns over the next 12 months.
What should be the ideal portfolio mix — largecaps, index-heavy stocks or mid and smallcaps?
In our view, it should be a judicious mix of all with a bias towards large caps for the year.
Equity truly outsmarted every other asset class barring bitcoins. What are your views on this buzzing asset class? Do you think it is a bubble?
It is very difficult to comment on what is happening in the case of bitcoins. It is also a challenge to ascertain a fair value for bitcoins. However, the price movement over the last few months definitely should make one cautious.
After a blockbuster 2017, do you see domestic flows ebbing somewhat in 2018? If no, what is the kind of money you expect MFs to get in 2018?
While it is difficult to say if the strong domestic flows of 2017 will be repeated in 2018, we do believe that the trend of finacialisation of savings is a secular trend and will continue for many years. Hence, 2018 should also see good domestic flows.
India Inc has raised more than Rs 70,000 crore so far in 2017. What is the kind of fundraising you expect in 2018? Any particular IPOs you watch out for? And, which sectors are likely to dominate IPO activity next year?The Indian equity markets have seen a very good year as far as IPOs, QIPs and disinvestment is concerned. While there is no definite data available, we do expect this trend of raising equity from the market to continue into 2018 as well.