MC Interview: HDFC AMC's Srinivasan Ramamurthy flags global risks, says stock selection key for creating alphas

Corporate earnings disappointments over the past few quarters have been a key headwind to market performance. Earnings downgrades appear to have bottomed out with March quarter earnings seeing limited negative surprises (barring Information Technology sector).

Expectations of a) some recovery in the mass consumption segment following government support, and b) capex cycle recovering after a sharp drop in government spending last year, could provide some cushion for next year earnings growth. Sharp moderation in export demand remains a key risk. In the medium term, earnings growth could track nominal economic growth of the country.

At this juncture, what sectors look more attractive to invest in?

While valuations have seen some moderation across the broader market, most sectors continue to screen to be reasonably to expensively valued.

Consequently, we find limited opportunities on a top-down basis across sectors. The earnings outlook too appears dispersed with higher risk in export linked sectors given slowing global growth and appreciating currency. We suspect that earnings growth will be less democratic compared to the 2022-24 period and hence stock selection will play a key role in creating alpha in portfolios.

Do you expect Indian equities to attract strong FII inflows this year, considering the easing of most of the risks that had previously dampened sentiment?

Sharp equity outflows driven by FIIs has been a key characteristic of Indian markets since September 2024. This trend has also been seen in other regional and emerging markets. While overall flows to emerging markets would continue to be determined by the global uncertainty surrounding geopolitics and tariffs, India appears to be relatively better positioned given lower export dependence, better growth outlook and a healthy corporate sector balance sheet.

Do you think the market will closely watch the Trump administration’s next policy moves? What could be their potential policy initiatives?

The US trade policy along with global geopolitics remain a critical cog in the global trade wheel. While waiting for details to emerge after the current 90-day pause, it does appear likely that global tariff rates will settle higher compared to pre-tariff period. This could potentially drag global growth and push up inflation. Bilateral arrangements by India with its large trading partners would be a key driver shaping our outlook for the export-oriented sectors.

How do you evaluate the attractiveness of different asset classes in your asset allocation decisions?

Our key objective in managing asset allocation strategies is generating healthy risk-adjusted returns for investors with reduced volatility and portfolio drawdowns. The basic thought process that drives our asset allocation frameworks is being counter cyclical. Choice of exposure to each asset class is determined primarily by its valuation attractiveness.

In addition, we also evaluate aspects such as macro-economic outlook, sentiments, and liquidity to aid in our assessment. We follow a bottom-up fundamental approach for equities and debt portfolio construction.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.