See opportunity in mid-caps post recent correction: Ageon's Saibal Ghosh

The 'India growth story' is much more compelling now than rest of the globe, he says

The markets have remained resilient over the past few sessions despite the election-related uncertainty. Saibal Ghosh, chief investment officer at Ageon Life Insurance, tells Puneet Wadhwa that the ‘India growth story’ is much more compelling now than rest of the globe. Edited excerpts:
 
What is your market outlook for the remaining part of the year?

The markets are likely to remain volatile till the time general election is over. While we are trying to keep our portfolio less volatile in the short to medium term, the underline theme in our portfolio remains constructive. Major reforms have already been implemented in the last four years, and this will propel growth. Corporate earnings should start to look up from the next financial year. Besides, two big risk factors for the market in the form of higher interest rates and falling rupee are now, hopefully, behind us.

 

Where do you see opportunities in the current market?

The mid-cap space represents the India growth story more powerfully than large-caps. We see great opportunities in select mid-cap pockets after the recent correction. Notwithstandi­ng the recent under performance over a five to 10-year scale, mid-caps have reasonably outperformed their large-cap peers. This is understandable, as the ‘India growth story’ is much more compelling now than rest of the globe and it is expected to remain that way.
 
Can you elaborate on your corporate earnings growth expectations?

The earnings growth is a function of nominal GDP growth, which has been moderating in the last few years. The nominal growth numbers have now decisively shifted downwards to 10-11 per cent in the last five years. While we have witnessed almost stagnant earnings growth in the last four years, the earnings cycle (in large-caps) is expected to turn around. A large part of the earnings growth in FY20 will not come from domestic growth factors but from non-performing asset (NPA) resolutions of banks and major contributions from sectors like information technology (IT), which has nothing to do with domestic growth. However, a visibility of 15 to 18 per cent earnings growth of Nifty 50 stocks in FY20 is quite strong at the current juncture. 

 
The markets believe that the ruling dispensation will return to power. What do you think?

At the current level, the markets are pricing in the ruling party to return to power with may be a lesser majority. To put it in another way, the markets are not pricing in a coalition or Third Front. However, empirically, we have witnessed that over the long term, it does not matter who the ruling party is as long as it adopts development policies.
 
Over the past few years, the markets have been supported by flows from the mutual fund and insurance segments. Do you see these tapering off?

There is no doubt that flows are slowing down after an initial spurt and this was expected. Howe-ver, while the flow may taper off marginally, I expe-ct it to continue as people’s confidence in financial savings is growing due to a fall in inflation, better awareness of institutional products and demonetisation of transactions.