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Speaker: Mr. Navneet Munot

Designation: CIO-Equity, SBI Funds Management Pvt. Ltd.

 

Q.1 Views on current market (00:11)

Ans – It’s been a great year for equity investors. Nifty is up around 25% here till date and the stocks in the mid and small cap space have delivered even better. There are mainly three reasons why markets have done so well this year. Number 1 is global tailwinds - I think not only India, almost all equity markets have done well. Emerging market index is up 30%, so India has also participated in that. There is synchronized global economic growth with lower inflation which has been keeping good liquidity in the system and India has been a beneficiary on that. Second is all the policy reforms whether it’s GST, Bankruptcy code, Real Estate Regulatory Authority, so on and so forth. I think investors have a hope that this will put India on a much stronger macro-economic trajectory over the next several years. Third is the domestic liquidity which has been surprising on the upside. I think from hereon, bulk of the games have come from valuation re-rating. I think it will depend on how the earnings span out over the next few quarters.

 

Q.2 Views on earnings recovery and growth for FY’19 (01:08)

Ans – When I talked about the global equity market rally and Indian rally, there is a bit of diversions. In US, corporate profits as a percentage of GDP is at all time high. In India, it is probably close to all time low, less than 3%. I think it is likely to mean revert from hereon. Over the next few years, once the overall economy starts doing well and within that the share of corporate profit increases, I think the corporate profit growth which has been muted in last 5 years is likely to mean revert. And I think that should drive the market.

 

Q.3 Possible headwinds and tailwinds for the markets (01:41)

Ans – Some of the tailwinds I have mentioned – the global synchronized growth I think which will help India. All these policy reforms that have happened, they have impacted the growth negatively in the near term, but structurally they are positive. They will improve the productive capacity of India. Over the next few quarters as government spending increases ahead of the general election in 2019 and some of the large state elections, that should benefit the rural economy. That should benefit the infrastructure spending. From the headwind perspective, I think if the global monetary tightening is more than what the market anticipates today or geopolitical risk globally. I think that’s difficult to predict. Also one of the things I would mention, the global volatility in the markets is at abysmally low level. So whether investors are complacent or is it a new normal, nobody really knows. But we need to pay attention to that.

 

Q.4 Sectors to invest in and to avoid. (02:33)

Ans – Some of the things that we were avoiding till some time back included corporate lenders, construction, telecom and all, but over the last few months, I think they were all available. It could rise and there is a positive margin of change. So we have added some of these names. I mention about the rural economy. I think with more money spent on irrigation, rural roads, rural electricity, with more financial inclusion, direct benefit transfer, with crop insurance. With all of these things, I think rural economy should do well. Government spending should increase. With more money getting spent on infrastructure, I think overall industry should do well. We are also positive on return of global capex cycle. Some of the Indian companies should benefit from that. When all of these things happen and as economy recovers after the twin shocks of Demon and GST on the economic growth, I think the overall consumption and some of the other drivers for which India is known for, I think all of them should do well. I think it’s a lot more bottom up than a large sectoral call.

 

Q.5 Message to investors who want to invest in current times (03:37)

Ans –I think we have seen because of the election results of Gujrat, how the markets have been doing a zigzag depending on how many seats each of the parties are getting. I think the investors get too swayed by some of these moments. I think they need to focus on the asset allocation. They need to keep discipline of staying with that asset allocation for a longer period. Try to take advantage of this volatility rather than getting swayed by it. I think structurally over the next 2 years, equities are likely to deliver better returns than most of the other asset classes and investing in a disciplined manner would be the right way to do it.