Amit Jain, Chief Strategist-Global Asset Class, Ashika Group, says a bad bank is a good idea to solve the problem of non-performing assets but its effectiveness would lie in its ownership structure and the process that would be put in place for recovering NPAs.
In an interview to Moneycontrol's Sunil Shankar Matkar, Jain says the worst is over for corporate earnings and they will only get better. Edited excerpts:
What should be the investor strategy after the Budget? Should they reshuffle the entire portfolio?
Investor strategy should be cautious. Before the Budget, the market was oversold and was down almost 4,600 from its peak, however, post-budget, we have seen classical short covering along with some long build up in selected sectors and PSUs. However, this may be an interim top for the market. I agree with you, investors should reshuffle their portfolio in undervalued sectors to have better risk-reward ratio.
The market is at record highs. Should one reduce exposure to equity and increase to other asset classes?
Yes, allocation to equities may be reduced if you have a horizon of three year or less at this point of time. We have seen 100 percent return on investment (ROI) since March lows and from here on, it may be tough for fund managers to find “real value” in the market. Investors should start allocating money to gold again if they wish to hedge their gains made till date. We are advising our clients to be cautiously optimistic on markets for CY 2021.
What is your reading of the December quarter earnings? Do you expect the upgrade in earnings to continue?
If you remember my last interview with you on November 3, 2020, when world rating agencies were bearish on India but we predicted that the Indian economy will grow by over 10 percent in FY 2021-22. To our pleasant surprise, now leading global rating agencies have aligned their view with our prediction on India's GDP growth.
Both IMF and Fitch have revised up their GDP growth projection for India to 11.5 percent plus. Hence, we also continue on our stance of November 2020 for both the economy and corporate earnings. We will continue to see better earnings for Indian corporates, in fact, I can say the worst is behind us for corporate earnings.
Which are the sectors one should add to the portfolio after the Budget and the December quarter earnings?
We have been positive on PSUs & PSU bank, infrastructure, real estate and telecom stocks since November 2020. We continue to be bullish on these sectors even post budget. On banking, we were cautious earlier but now post “bad bank” proposals, we feel credit growth in the economy will rebound, which may be good for the entire banking sector. However, the Bank Nifty rally post-Budget has factored in some of growth well in advance.
Which are the sectors that investors should steer clear of?
This Budget is growth oriented and investors should reduce their weightage to defensive sectors. In fact, we advised lightening position in pharma and FMCG sectors in December 2020. We continue to maintain the same. Also, hotels and aviation stocks can be averted at this point of time.
What is your reading of the Budget fine print? How will you rate the Budget out of 10?
There is no doubt about that this Budget is growth-oriented. But this growth shall be coming up with a much higher proportion of increased borrowing by the government, which may be a cause of worry, if we don't grow at 10 percent plus GDP growth rate in FY 2021-22.
Borrowings are good, so far as we are growing, any negative surprise on GDP growth number by end FY 2021-22, may put credit rating agencies stance negative on our credit rating. With higher planned government borrowings, the Indian economy may touch debt to GDP ratio of 90 percent by end of FY 2021-22. In my personal view, I will rate this Budget close to 7 out of 10.
Do you think the Budget gives a boost to the banking & financial sector—the Bank Nifty has rallied sharply after the Budget? Do you think the bad bank proposal addresses the problem of NPAs?
Yes, very much. I think the sharp rally in the Bank Nifty tells it all. This “bad bank” idea had been in discussion for very long but this time, we have actually executed this idea, that's why we have seen banks had run up so fast. In my view, a bad bank is a good idea to solve NPA problems but its effectiveness lies in the ownership structure of bad bank and the processes which will be framed for recovering NPAs.
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