Phir ek baar Modi sarkar is the mandate of the people. With the re-election of NDA with an overwhelming majority, the general consensus is that the ruling coalition will continue its economic and governance reforms and work towards the India growth story.
What should the investment strategy be post-elections? We spoke to a few fund managers to find out.
On the equity side, fund managers see opportunities in the mid and small cap space and in the consumption story.
Neelesh Surana, CIO, Mirae Asset MF expects corporate earnings, which have remained subdued so far, to pick up. With continuity at the centre, he expects the government to reiterate its focus on consumption and investment. Currently, 15% of India’s population is below the poverty line; government measures to shrink the number through its various initiatives such as doubling agriculture income will boost consumption. Meanwhile, the banking and infrastructure space is likely to benefit from government spending. In such a scenario, multicap funds will allow investors to tap opportunities across market capitalisation, he feels.
Neelotpal Sahai, Head of Equities, HSBC MF feels that while the government set forth various far-reaching reforms in the last tenure, it will now shift its focus on growth in manufacturing, export and infrastructure. Like Neelesh, Neelotpal too feels that the government will continue to roll out welfare schemes, which will have a direct impact on consumption. Overall, Neelotpal is bullish on three main themes – improvement in private sector bank earnings, public sector capex investment and private consumption – as he expects disposable income to increase in the coming years and it will boost aspirational purchases. Investors can look at schemes having allocation to mid and small cap space like large and mid-cap fund or multicap fund as the mid and small cap space is currently more attractive in terms of valuations and earning potential.
Like Neelotpal, PVK Mohan, Head – Equity, Principal MF too sees a broad based market movement in the mid and small cap space as many attractive stocks are available at reasonable valuations in the category. He feels that investors can look at multicap funds in the current market.
Jinesh Gopani Head – Equity, Axis MF is betting on the corporate deleveraging and operational efficiency story. He sees tactical opportunities in the mid and small cap space, especially companies with well-defined niches and strong moats. According to him, while the election results are extremely positive for the Indian equity markets, longer-term structural changes will take time and hence investors should continue to exercise caution while deploying fresh funds at this juncture. Earnings recovery is still a couple of quarters away and hence participation in a phased manner would be ideal to ride out the inherent volatility in the current markets.
Sabyasachi Mukherjee, Head of Research and International Product, Karvy Private Wealth expects a strengthening rupee coupled with anticipated higher FII inflows will along with receding volatility result in a broad-based equity markets rally. He is bullish infrastructure, banking and consumption themes with quality midcaps joining the party.
On the debt side fund managers believes that there is room for a rate cut.
R Sivakumar, Head – Fixed Income, Axis MF expects inflation to remain within the RBI mandate of 4+/-2% and hence, he anticipates the forthcoming RBI policy to tilt towards growth. Overall, he expects 1-2 rate cuts till December 2019. Currently, investors can look at short to medium term funds as AAA spreads for 3-year corporate bonds are currently at 200 bps over repo rate, making them attractive investment opportunities at current levels. Moreover, investors with higher risk appetite can also consider credit funds as 3-year AA credit spreads are currently trading at ~300 bps above the repo.
Suyash Choudhary, Head – Fixed Income, IDFC MF feels that the election mandate of a continued strong government will help contain sovereign risk premium and allow policy to focus on the local narrative of slowing growth. The government seems to have little fiscal space given recent pressures and must balance incremental deficit expansion with the economy-wide cost of higher real long-term rates. The RBI/MPC, on the other hand, have more room and should respond now with a more decisive focus on the guidance tool for both rates and liquidity. Currently, he is bullish on quality bonds (sovereign, SDL, AAA) and cautious on lower rated credit.
Dwijendra Srivastava, CIO (Debt), Sundaram MF expects the government to continue its focus on fiscal consolidation and lower inflation. This will give the monetary policy committee more room to cut rate in response to slowdown in global macros. However, despite the rate cut, long-term yields are likely to remain high due to supply from government and quasi-government bodies. Investors with 18 to 24-month horizon can look at short to mid duration funds as with repo likely to come down, investors can lock-in these higher rates for most of their investment tenure. In addition, investors with higher risk appetite can also consider credit funds under the guidance of their financial advisor. The advisor should recommend fund houses with a good track record in managing credit risk.
