Govt's continuity partly factored in by markets: Edelweiss' Nitin Jain

After poll results, we expect allocations by these investors to pick up, says Jain

The markets are experiencing a bout of volatility due to uncertainty around election results. Nitin Jain, president of Edelweiss Financial Services, speaks with Jash Kriplani on how market dynamics could change after the poll outcome next week. Edited excerpts:

What could be key triggers for the markets?

Market triggers could come from a few developments. On the domestic front, while continuity of the current government is partly factored in, a majority (for the BJP) would certainly be a boost for the markets. Further, a new government could add to fiscal stimulus early in its term. However, we are cautious about the revival of earnings or the capex cycle. On the global front, the US Fed’s rates trajectory continues to be a key factor. A favourable rate stance could provide an additional trigger.

FII buying has been strong in the past few months. Do you see this continuing?

Last year, India was trading at 70 per cent premium to other emerging markets. Currently, we are trading at a premium of around 45 per cent (close to the long-term average). There could be some pick-up in capex in the second half of the FY20. 

How are high-net-worth investors positioned in the prevailing market conditions?

While equity flows are slowly picking up, most ultra-high and high net worth investors remain cautious on their allocation. There are select mandates for investments into mid-cap mutual funds. But, overall investor confidence is not yet back, and people are largely waiting for the uncertainty around the election to disappear. After poll results, we expect allocations by these investors to pick up. 

How could investors position their sectoral bets?

A strong market trigger will result in a broader rally, which would lead to construction and capital goods — in that order — to outperform. Regardless of market triggers, we expect telecom to outperform. We continue to be somewhat cautious on consumer discretionary. Large-sized financials remain good bets. 

When can we expect to see a revival in the flow of initial public offerings (IPOs)?

IPO activity was quite limited in the last two quarters due to weak market conditions. If election results are in line with market expectations, we should see a strong revival in primary markets. 

What’s your take on the fixed income segment in light of the recent volatility?

Real interest rates are still quite high. So, there are good opportunities in short- to medium-term duration. Investors could look for opportunities in AAA-rated diversified fixed-income funds or tax-free bonds. Inflation is likely to hover around the current levels of 2.5-3 per cent unless there is a sharp rise in crude prices. Instruments like AAA-rated tax-free bonds offer decent returns of 6.4 per cent. Liquid funds are offering 6-7 per cent, while fixed maturity plans are offering 7-8 per cent returns post-tax. There are some good risk-return opportunities, even though there has been newsflow around credit defaults.