Pharma and technology are the two sectors that look good on the value front, says Reddy.
Markets have been rewarding “growth” and are willing to pay a premium for it. Financials and FMCG are some of the growth-oriented sectors that continue to look attractive to them, Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance, tells Moneycontrol’s Kshitij Anand in an interview.
Edited excerpts:Q) What is your take on the GDP data for the December quarter? Do you think more policy measures are on way to boost growth? How will it impact markets?
A) The GDP growth rate was along the expected lines for the December quarter (Q3 FY20) but there were upward revisions for Q1 and Q2 FY20 growth rates due to earlier downward revisions seen in FY19 data.
The fixed investment saw a sharp downward revision in Q2 FY20, with growth being marked down from +1.0% to -4.1 percent and a further contraction of 5.2 percent was seen in Q3 FY20.
This, along with some of the recent high-frequency indicators, does raise some questions on whether the economy has indeed bottomed out as was being factored by the markets.
However, we do feel that the economy may be close to bottoming out and we may see a gradual recovery. Another factor that needs to be considered (and is a developing situation) is what impact the coronavirus epidemic will have on global growth and India’s growth to some extent.
The government and the RBI have been taking various measures to deal with the slowdown (especially for the investment and infra sectors, which have seen a sharp slowdown) and we may expect more policy measures if the slowdown continues.
Markets may witness some volatility in the short-term due to both domestic and global factors (as mentioned) but are likely to be more driven by how the corporate earnings trajectory shapes up over the medium term.Q) Any value buy with respect to sectors that are looking attractive?
A) For the past one or two years especially, markets have been rewarding “growth”, and are willing to pay a premium for the same.
We think this will continue for some more time and therefore prefer growth to value. Some of the growth-oriented sectors which continue to look attractive to us are financials and FMCG. Among “value”, some of the sectors that we prefer include pharma and technology.Q) Coronavirus has become a worry for markets across the globe. What is the way ahead for Indian markets?
A) The reported cases for coronavirus indicate that it is quite contagious, though the mortality rate is relatively lower (compared to some of the earlier epidemics) and has largely been contained within China.
However, we recently have seen incremental cases ex-China rising, which has raised some concerns about the possibility of a global pandemic. Right now it is a developing situation, so it is difficult to evaluate the impact and we need to track the progress for the same.
Recently, we have seen some global risk aversion, as a result we have witnessed a decent correction in global markets (including India) and a sharp correction in crude oil prices as well.
China is the world’s second-largest economy –accounting for around 16 percent of the global GDP and 12-13 percent of the global trade.
Therefore, there are some concerns such as what impact the coronavirus epidemic will have on global growth, whether there will be any large-scale supply disruption (with China being a large exporter), and if the virus outbreak spreads on a large scale to other countries.Q) FIIs pulled out more than Rs 12,000 crore from Indian markets in February. What is the reason for the selloff? Do you think the selloff will intensify if the coronavirus situation worsens?
A) The FII outflow we have seen in India and other emerging markets is due to global risk-off sentiment, as a result of concerns over the coronavirus epidemic. The slowdown in economic growth and tepid corporate earnings have also partially contributed.
This has resulted in a correction in the Indian markets and also global markets. In the short term, we may see more volatility and risk-aversion if the coronavirus epidemic escalates, but the markets may start to find value at some juncture, especially if the data suggests some gradual economic recovery and corporate earnings recovery.Q) It looks like money has started moving from equities to havens like gold and other fixed-income products. Do you think fixed income space could outperform in 2020? What should be the strategy?
A) Yes, safe-haven asset classes like gold and fixed income are typically expected to outperform during periods of market volatility or risk aversion—and that’s what has happened.
In the short term, if the volatility continues, then these asset classes may continue to do well. However, historical data shows that over the long term, equities have been among the top-performing asset classes (even though it comes with intermittent short-term volatility/corrections) and have helped in creating wealth for investors, thereby requiring patience.
We continue to suggest investors to systematically invest in equities. Also, although we continue to prefer large-caps, we see some attractive bottom-up opportunities in the midcap segment as well from a valuation perspective.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.