Consumption story is going to be sustainable in India, says Mr. Saravana Kumar CIO - Tata AIG Life Insurance Company Ltd.
Given the sharp spike in crude prices and inflation concern, what is your near term outlook?
In the short term, we are facing certain headwinds. India imports 80 per cent crude oil which makes it highly sensitive to increase in crude prices. With every $ 10 increase in crude price, country’s current account deficit increases by Rs. 39,000-40,000 crore. In the Union Budget, FM has accounted only Rs. 45,000 crore assuming the crude would trade below $ 100. Based on this, FM has projected 4.6 per cent fiscal deficit for FY 2011-2012. Inflation is also a major concern.
In the medium to long term, I am very positive on Indian growth story. Going ahead, we expect the markets would do well.
Which sectors are you bullish and bearish?
Based on the current market development, consumption story is going to be more sustainable in India. For auto sector, there is a consumption story mainly for the two- wheeler and three-wheeler segments.
The numbers from commercial vehicle segment also support a positive outlook for the sector especially for companies like Tata Motors, Mahindra, Bajaj Auto etc. and this is sustainable because of increase in per capita income and GDP. Today two-wheeler and four-wheeler are no more a luxury but a basic need, so the requirement is going up. Also, major connectivity of roads by NHAI gives a multiplier factor which results in more demand for commercial vehicles.
Pharma is another consumption story which is really doing well. The health care expenditure in any developed economy is around 15 -20% of country’s GDP. In US the expenditure is around 18 per cent whereas in India the numbers are below 2 per cent. Indian pharma sector has a lot of ground to cover.
The third sector for which I am positive is FMCG. Companies from this sector have witnessed strong sales growth like Nestle, Asian paints etc. Another sector on which I am bullish is the I.T. sector. The data which we have received from I.T. majors and I.T. second line companies shows strong order book with sales picking up from the US, Europe etc. I.T story is very much linked with the recovery from US and Europe countries.
A sector on which I am bearish is telecom. The sector is getting over crowded with many players which results in stiff price competition and affects the company’s bottom lines. The real estate sector too will underperform in the near term. We expect 10 -12 per cent correction in the real estate prices.
Oil & gas is also likely to see some correction because increase in crude price increases the losses of oil marketing companies. Cement sector may also see some pressure for short run because of price war and additional supply.
From the past two to three months, some sectors like financial services have been beaten down very badly. The banking index has come down by more than 30 per cent from November 2010 peak level. We expect the sector to pick up again. Also the capital goods sector has been down for the last one year because the government had slowed down in infrastructure space. I feel there is a good opportunity for this sector.
Tata AIG’s first year premium for the 3Q was lower than previous year. What caused this slip?
This is an industry wide phenomenon. Post ULIP regulation by IRDA, reduction in distribution margin has adversely affected the distribution of ULIP policies. The slowing down in ULIPs is for a short term. I feel the industry will stabilize after two quarters. Also with the IRDA clearing more and more ULIP schemes we expect sales to pick up in medium and long term.
What is your current investing strategy considering the uncertain markets?
My fund management strategy is to closely track the macro and micro trends both in the domestic as well as the global market. We track global commodity prices like oil, steel, US interest rate and other global interest rate and geopolitical development.
Out of the 800 schemes in the insurance sector, our schemes feature among the top five. In the growth category, TATA AIG Whole Life Aggressive Growth stood first posting 12.18 per cent annualized returns. In the equity category, TATA AIG Equity is ranked third (behind Bajaj Equity Growth and SBI Equity) posting 13.96 per cent annualized returns.
On the debt side, we are aggressive on duration management and credit pick up. In the past three months, we got very good returns investing in short term instrument because short term yield is inverted.
By investing in one year CP and FD we are able to generate returns of 10 per cent and above whereas investing in G-Sec offers 8.10-8.30 per cent returns. Over the last two months, we are shifting our fund portfolio from G-sec to short term instruments in bank FDs & CDs to lock in the good returns thereby improving portfolio returns.
