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Speaker: Mr. Manish Gunwani

Designation: Chief Investment Officer-Equity Investments, Reliance Nippon Life Asset Management Ltd.

 

Q.1 Factors affecting the Indian Equity markets (00:11)

Ans – To recognize one thing we must be sure that over last 4-5 quarters, the equity markets have had very low volatility compared to the historic average. In fact, S&P 500 had the lowest volatility from Mid-June 2016 to January 2018 in its entire history. So one thing we are very clear about is that the market should be prepared for higher volatility. Second this is clearly a year where politics will also play a big role because slowly we are building up to the general elections. Thirdly, we are definitely seeing signs of economic recovery which is starting to reflect in the earnings. So, I think these are some of the factors which will affect the equity markets in the near future.

 

Q.2 Expectations out of the Q4 Earnings season (01:09)

Ans - Already what we are seeing there is recovery in lot of segments. So for example, companies which have a rural presence, they are consistently reporting better outlook going forward. Similarly, in segments of infrastructure like road constructions or cyclicals like commercial vehicles, we are clearly seeing a good momentum in terms of business and operating performance. So, I think overall the earnings trajectory is looking up and we could get over next 3 years a cumulative earnings growth of 50-60%.

 

Q.3 Sectors that you are overweight on? (01:50)

Ans – Broadly we find valuations of cyclicals cheap also in the context of our view that economic recovery is starting. So typically the sectors we are overweight on are Corporate Banks, segments of infrastructure like road construction, logistics etc. power utilities those kind of sectors.

 

Q.4 Possible headwinds for the Indian equity markets (02:20)

Ans - One of the major macro concerns we have at this point is the dynamics of India’s current account deficit. So what is happening is with the recent spike in oil price, we are roughly at 2-2.5 % GDP has current account deficit currently. So in an environment where world growth is doing well, export growth of 10-12% is not something we should be comfortable with. We should ideally be seeing 15-20% export growth. But unfortunately that is not happening. With the result that there is a threat that the current account deficit may overshoot 2.5-3% and typically when that happens, there is lot of pressure on currency and foreign flows are very muted. So the major worry for us at this point of time is essentially the current account deficit.

 

Q.5 Possible tailwinds for the Indian Equity Markets (03:22)

Ans- The biggest tailwind is we are coming out of that 2011-16 period when both domestic growth and global growth was weak. So last 2 years, global growth has picked up. India because of GST and demonetization has had a phase lag catching up with world growth. But next 4-6 quarters, if world growth remains strong, what we are likely to see is even India’s growth will ramp up and with that when world growth and India growth doing well, the earnings recovery can be very very strong. So the biggest positive I see is with this combination of world growth may be good monsoon, election related spending which will act as a stimulus for consumption.

 

Q.6 An advice for our Indian equity investors (04:14)

Ans -What we want to urge investors is that if you look at equities last 30 years, 16% compounding for the Sensex, clearly both in returns, in convenience and liquidity, it’s being the biggest major asset class for investors. So, Indians are still very under invested in equities. So, I think they should use a systematic plan of increasing allocation to equities. Obviously, SIP is a great tool to do that, but I think they should override the current volatility and look forward to their long term asset allocation and allocate money to equities as per their long term goals.