 "A Balasubramanian")
While the first half of calendar year 2015 (CY15) has been dominated by developments across China and Greece, US Federal Reserve's decision on interest rates could keep investors on the edge in the second half of CY15. A Balasubramanian, CEO, Birla Sun Life AMC, however, believes that a rate hike by the US central bank could be a non-event for the markets. Global challenges should not affect India, he tells Puneet Wadhwa, as India is becoming increasingly inward focused. As in investment strategy, a skew towards equity would probably see better pay-off as long as the investment time period is beyond three to five years, he says. Edited excerpts:
Do you think the worst has played out as regards to global cues (Greece, China)?
Yes, it looks like the worst is behind us and at the same time, market players will continue to look forward to a flow of many positive news. What will hold on to our market is the continuous effort and acknowledgment of sincere efforts that is being put by our government and regulators. As it is, we are seeing some early signs of revival, if we go by commercial vehicle (CV) sales numbers. Activities around the mining sector are also showing an improvement.
Do you think that the US Federal Reserve could possibly delay the rate hike beyond December 2015 given the developments in the euro zone?
While the market expectation keeps changing on the basis of moving variables such as employment numbers and so on, the overall expectation of rate hike in the US is not any more a question mark. It is the question of now or later in the year. We believe that the rate hike cycle would begin and as it begins, it may in all probability become a non-event. I am saying this because the market has already factored in such moves from the US Fed.
Secondly, Europe, after the Greece settlement, might go for some easing to revive the economic growth. Therefore, it is going to be quite interesting to watch for global developments.
Irrespective of what may happen, looks like India would be a big winner this time, not only in terms of winning global investors' confidence, but even in winning the confidence of domestic investors.
How do you see the Indian markets playing out over the next few quarters and how much bad news are they factoring in as regards global and domestic challenges?
The Indian market has consolidated well over the past few months since global volatility began. Both domestic and global factors continue to be favourable for India. We have the comfort of high foreign exchange reserve, well managed rupee-dollar market, stable to falling inflation outlook, continuous reform focus of the government among many others. We believe that even on the policy front, we are going in the right direction. Global challenges should not affect India, as India is becoming increasingly inward focused and one should not be surprised if there is a substantial pick-up in the activities in the next few months. Therefore, we stay positive on both equity and fixed income asset class.
What is your advice to someone who: a) wants to take a fresh exposure in equities? and b) is already invested?
Our suggestion would be - look at your own asset allocation and continue to keep the faith in long-term investing in equity. We believe that gold and real estate, wherein a large pool of the Indian savers' money has gone, will underperform. Incremental money will therefore, have to be allocated between equity, hybrid and fixed income schemes. Although allocation into all the asset class will vary from person to person on the basis of their own lifecycle at which they are in currently, a skew towards equity would probably see better pay-off as long as the investment time period is beyond three-five years.
Domestic mutual funds, according to reports, have made use of the recent correction to increase exposure to equities even as foreign institutional investors sold. Which sectors have been on your shopping list?
Our portfolio managers remained bullish on private sector banks, automobiles (four wheelers), capital goods sectors and pharma.
Are there any contrarian bets that one can look at the current levels?
One could see pick up in capital goods and telecom sectors.
How soon do you see the Reserve Bank of India (RBI) cutting rates again?
We hold our view that interest rates may see a fall of close to 50 bps (basis points) before the end of the year. On the back of this, our fixed income portfolio managers have been running a medium-to-high duration portfolio, essentially, prepared to benefit out of any potential fall in interest rate. On the basis of, it is an ideal scenario to go for medium-to-long duration portfolio.
How do you see key macro indicators (rupee, inflation, interest rates) panning out over the next few quarters?
The Rupee would remain very stable and India would continue to see flow from overseas investors especially in the FDI segment. Inflation, looks like structurally getting adjusted for settling lower. This is currently sufficiently supported by both fuel and commodity price falls. Interest rate is heading lower, however, reduction would be gradual as the Economy starts progressing well.
How do you see these factors impacting corporate earnings in FY16 and FY17?
We expect corporate earnings to get a boost with these factors along with revival of economy boosting the top line and thus improving the bottom line. Most Indian firms have handled the cost aspects very well during tough time, therefore, companies may get dual benefit of improving top line and improving margins due to cost improvement.
