Sutapa Banerjee, CEO (private wealth), Ambit Capital, believes the major share of market correction is over. However, the trend is clearly favouring fixed income, thanks to near-term volatility of markets as well as the high returns from debt securities. In an interview with Puneet Wadhwa, she spoke on various issues, including sectors which can expect policy action. Edited excerpts:
Is there more pain in store for the markets over the next few weeks? Going into the next year, what broad range do you expect the market to trade in?
The markets have seen a mix of price and time correction in the last four years (2008-2011), implying the major share of volatility/correction is behind us. However, they are likely to be sensitive to global/macro news flow and the euro-zone crisis. Given the uncertainty, it would not be prudent to predict ranges. We expect the equity markets to reward investors who follow a stock-specific approach, based on fundamentals.
On the policy front, what would you watch for?
Given the weak global economy, slowing GDP growth and poor investment sentiment, there is a case for the central bank to refrain from raising rates in the coming three-six months. Policy action is expected on key areas such as mining, infrastructure spending and power generation, which could provide respite for companies in these sectors. A pause in the rate hike cycle may come as major relief for the banking sector.
The GDP has dipped to 6.9 per cent in the second quarter, as against 8.4 per cent year-on-year. Was this expected? Should one be overly concerned?
The GDP numbers were in line with market expectations. A lower GDP growth (under seven per cent) is a concern partially factored into the markets. If this trend persists in the coming quarters, the markets may see more negative reaction.
The construction sector grew at 2.7 per cent during the first half, compared to 7.2 per cent in the same period last year. Do you expect continued downside?
Stocks of construction companies have seen derating due to slow order inflow, margin contraction and higher interest costs. Many are close to 2008-lows. We don’t expect a significant downside in the sector. However, a meaningful recovery depends mainly on a surge in order inflow and improved profitability.
What strategy do you recommend to your HNI clients? What are the prevailing trends in the private wealth space?
On the fixed-income side, weare recommending exposure to long-dated government securities and PSU bonds through debt and gilt funds, as well as fixed maturity plans (FMPs). We think this is one of the best risk-adjusted means of investments, where returns would be higher when RBI cuts rates over the next year. FMPs will generate a high post-tax yield without market risk.
We are advising against taking credit risk, as the current yields do not compensate for the underlying risks of a slowing economy. The trend is clearly favouring fixed income because of near-term volatility of markets, as well as high returns from debt securities.
