 "Ritesh Jain")
It has been a smooth ride for the markets all through March. Ritesh Jain, chief investment officer, Tata Asset Management, tells Puneet Wadhwa that though there could be some volatility ahead, India is placed better to weather a global storm than some of its commodity export-driven peers in emerging markets. Edited excerpts:
Given the recent run-up in the equity markets, will it be a good strategy to book some profit at the current levels?
The approach depends on the investor's risk profile and whether he is looking at equities from a short-term perspective or to serve their long-term goals. From a short-term perspective, maybe it's a good time to book profits.
Also Read
Structurally, India is one of the best positioned economies globally at this point. The government sticking to the FY17 fiscal deficit target in the recent Union Budget was a big positive sign for the foreign investors. The government and the Reserve Bank of India (RBI) have walked in tandem, both understanding the need for consolidation in a difficult global environment. This seems to have helped India during ebbing FII (foreign institutional investor) outflows in the near term.
When do you see a pick-up in corporate earnings?
These will start to improve slowly, in the second quarter of the new financial year, owing to the base effect. If the rain gods do shine upon India this year, in our view, the rural economy will start to come back over the next three-four quarters and help overall growth. In this context, we are optimistic on Indian equities for FY17. While the markets might continue to showcase volatility, we believe India Inc is on an improving wicket and this should translate into earnings momentum over the medium term.
What was your strategy in the last financial year and what is the road ahead? Are you fully invested right now?
We continue to focus on companies with strong business models, relatively less leverage with cash flow visibility and increasing market shares or having margin tailwinds, etc. These are basically quality companies, run by good managements and delivering consistent bottom-line growth, maybe trading at slightly higher valuations.
We are staying away from companies in sectors which are trading at apparently cheaper valuations but facing serious issues. We feel it is too early to take a call on revival of such companies/sectors. I am also bullish on gold from a medium-term perspective, as I believe the faith the market has on central bankers worldwide diminishes as the markets realise that central bankers have no magic wand to bring back growth. Hence, I see capital moving into gold.
Which sectors are likely to do well in the next financial year?
We continue to prefer cash-generating companies and are still averse to over-leveraged corporates. Among sectors, we are overweight on automobiles and ancillaries, capital goods and cement. We like logistics, companies exposed to the government's capex plans in railways, and defence. Certain pharmaceuticals companies are also looking good with US product pipeline launches over next three-four years and price correction related to FDA-related issues mostly behind. We continue to remain underweight on public sector banks and commodity companies.
What is your advice to investors in the light of domestic events like the upcoming elections, monsoon, etc?
Unfavourable outcomes in events like elections allow an opportunity to rather increase investment allocations. While volatility is here to stay for a while, we are relatively placed better to weather a global storm than some of our commodity export-driven peers in emerging markets. There are some good businesses out there, with strong fundamentals and management. It is markets like these where wealth gets created over the long term, provided you stick to investing discipline.
Our advice is simple. Continue to invest through systematic investment plans (SIPs) and stay invested for the long term. If there is capital waiting to be invested, the current valuations are compelling for even some lump-sum investments. We like infrastructure and capital goods-related sectors. We continue to stay away from highly leveraged commodity owners (especially metals).
What are your expectations from the RBI's coming policy review?
I believe that the lower-than-expected Consumer Price Inflation (CPI), together with the desired fiscal rectitude shown by the government, has cleared most of the hurdles for a 25-basis point (bps) cut in the benchmark repo rate in the April policy meet. Beyond April, if the monsoon remains normal and the inflation situation remains stable, another 25 bps rate cut in the second half cannot be ruled out, which I believe will be the last rate cut in the ongoing easing cycle.
