 "Chandresh Nigam")
Despite minor setbacks, markets have seen a good run-up since March. Chandresh Nigam, managing director and chief executive officer, Axis Mutual Fund, tells Puneet Wadhwa if the recovery in Indian economy gathers steam, we might be at the start of a new bull market for Indian equities. Edited excerpts:
Given the rally in equity markets since February, would it be a good strategy for investors to book profits at the current levels?
The recent rally in equities should be seen in the context of sharp sell-off the markets witnessed in January and February. So, on a year-to-date (YTD) basis, the market is about flat. We believe the Indian economy is showing incipient signs of recovery and we are at an inflection point from equity markets perspective. If the recovery in Indian economy gathers steam, we might as well be at the start of a new bull market for Indian equities.
What about March quarter corporate results? Do you see any signs of a revival in demand or is it the low base effect that’s driving the top-line?
The corporate results have been mixed and in line with analysts’ expectations. Core sectors like cement, steel, electricity and petroleum products are all showing solid double-digit demand growth for the past five months. At the same time, we are witnessing strong growth in automobiles and consumer durables. There exists significant latent demand in the economy and if we get good monsoon this year, demand will surprise on the upside in later part of the year. We remain sanguine about the demand recovery in the economy.
What has been your investment strategy since the start of 2016?
The correction in January and February was certainly a good opportunity to increase exposure to equities. Our investment strategy has remained consistent with focus on quality companies which can deliver sustainable growth over the long term. Sharp corrections in Indian equities — like the one witnessed in January and February — provide us with the opportunity to invest in some of the quality businesses.
What is your advice to someone who wants to make a fresh investment at the current levels, or has already invested in the markets in the past one year?
The medium-to-long term outlook for Indian equities is very exciting. India has fixed its macro-economic imbalances in the past five years and has one of the strongest macroeconomic fundamentals amongst all emerging markets (EMs). If the government and Reserve Bank of India (RBI) continue to pursue prudent macroeconomic policies, Indian economy can get into a virtuous growth cycle.
In context of that outlook, Indian equities are a very compelling investment proposition and can outperform every other asset class.
Is it time to look at policy driven sectors like telecom, power, aviation, infrastructure and real estate?
The policy uncertainty in India is behind us and the new government is making efforts to bring about consistency and transparency in policy making. But investment decision should be driven by the outlook for specific companies with in a sector rather than the macro outlook for the sector. Having said that, we certainly think the headwinds in these sectors are abating.
What’s your view on metal, cement and automobile sectors?
We continue to remain positive on all domestic sectors like autos, cement and consumer durables given our expectations of recovery in the economy. Indian healthcare is a great long-term growth story. Indian pharma companies are now amongst the leading generic companies globally and are making the right investments to move up the value chain in complex generics and new drugs. At the same time, we remain concerned about the Chinese growth outlook and its potential fallout on global growth. As a result, we are cautious on global materials and energy sectors.
Is it a good time to buy public sector bank (PSB) stocks, from a one-two year perspective?
We would wait before investing into state-owned banks. These institutions require substantial capital and need to undergo significant structural reforms to be competitive and relevant to customers. We like private sector retail banks which can deliver solid growth with sound asset quality.
