'In short term, momentum in market to be driven by flows. Volatility to remain high'

The language of the RBI today has moved in line with the language of Federal Reserve, a year back. It is not normal to see RBI talk about an accommodative stance with the language – "as long as necessary to revive and sustain growth on a durable basis". The indication and the tone of the RBI has been towards an accommodative stance and I do not see that changing over the next few quarters (into March 2022).

Q: What more measures are you expecting from the RBI in coming monetary policies to revive growth?

The RBI has its own version of Operating Twist that they are running (similar to the US Fed), through which RBI is buying bonds in the open market to manage the yield curve. This has certainly reduced the volatility in the market and the announcement of the recent buyback is a clear sign that the RBI wants to keep the borrowing environment conducive for capex.

I believe that this is fairly accommodative in nature, and once we open up across the country, which may take a few more months, the demand recovery should pick up to aid the investments on the ground (many of which will come through with a lag).

Q: Do you think with current measures and falling Covid cases & vaccination drive, India can achieve the RBI's growth forecast of 9.5 percent in FY22, which lowered from 10.5 percent?

One needs to understand that all forecasts have a handicap. You did not know that we would be faced with a second lockdown (albeit small) when the initial forecast was being made. So it's fair to assume that forecasts have relevance under 'normal operating conditions'. I believe that we would achieve our 9.5 percent growth forecast (and there is a risk of additional upside) under normal conditions. There is scope to improve the efficacy of the current vaccination drive and it's hard to believe that we will get to a 50 percent vaccination rate within the next 6 months (based on the current trend). Under this framework, I would believe that the risk to our growth is to the upside.

Q: Given the improving market sentiment amid falling Covid cases, can you name the pockets which are available at attractive valuations to buy now, and why?

One needs to realise today that the inefficiencies in valuations that existed 6-8 months back are not existent any more. It's easy to get attracted to sectors and buy momentum today, but I always believe that the biggest mistakes are made in bull markets – as it's easy to lose focus on discipline. Today the emphasis on growth and buying cash flow oriented growth companies becomes essential, and these companies are not cheap. There are two aspects that would get tested today – ability to be selective on businesses than sectors, and capital allocation (deployment into the market).

Q: Do you think it is the time to do more on health policy and vaccination than fiscal and monetary policy?

I believe the focus on fiscal and monetary is a necessary one today to revive growth. The business environment is conducive if we get our policy right, and we cannot afford to not front end spending ( from the governments perspective). The focus on health policy is more of a structural one – its not a one off focus for today, but something that needs a more consistent approach with a 10 year plan. Irrespective of which government, its not easy to plan for Covid like events as these are tail case risks that expose your deficiency. However, its important we acknowledge the same and focus on a central plan with the execution being decentralized at the state level. We would repeat the same mistakes again if we were to centralize our health efforts as we are not a homogeneous country.

Q: With the subsiding COVID infections and government support, will the market momentum continue in the rest of 2021? Will the broader markets outpace benchmarks in coming years?

In the short term, the momentum in the market is going to be driven by flows, which is why I believe the path is not going to be smooth. One needs to realize that the broader market move today is up but the path will be volatile and it would be prudent for investors to accept this. However, I strongly believe that equities will be the best risk adjusted return investment over the next 3 years in India. It's important to stay invested, accept volatility as part of the process and I believe well-constructed equity portfolios will generate health returns.

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