The government may also announce some steps to revamp the bond market to finance infrastructure projects.
Satish Ramanathan, MD & CIO – Equity, JM Financial Mutual Fund, has over 30 years of trading experience in capital markets He expects some sops to increase manufacturing and infrastructure and real estate as they generate a large employment base, crucial to keep the economy growing, he said in an interview with Moneycontrol’s Kshitij Anand.
Ramanathan is of the view that India is in a sweet spot, and expects Indian growth to remain intact for some more time.
edited excerpts:
Q) What are your expectations from the Budget? Which sectors are likely to remain in focus and any policy measure you think could cheer markets?
A) We expect continuity in policies. We believe that the Government has been proactive in responding to the crisis. India’s core manufacturing sector has not performed to its intrinsic level for several reasons, and we expect some sops to increase manufacturing and infrastructure, and real estate as they generate a large employment base, crucial to keep the economy growing.
Q) The year 2020 gave rise to many new avenues of investments and geographical diversification tops the list. What should be the strategy of investors for 2021? And someone wants to place fresh money in US markets – should they wait for a dip or deploy at current levels?
A) New avenues of investments have opened which allows investors to increase geographic diversification as well as sectoral diversification.
Investors need to assess if they are able to understand US markets or other regional markets and sectoral portfolios.
All of these segments will demonstrate cyclicality and investors will need to make their own decision. We do not comment on US markets.
Q) The FY21 Advance Estimates suggest that the economy contracted by 7.7 percent. Do you think the economy is on a recovery path in 2021?
A) All indicators point to a rapid recovery across sectors other than the services and hospitality industry. We expect India to continue on its recovery path in 2021 as well, though there may be some months of limited improvement.
Structurally, India is in a sweet spot, of the low cost of capital, increasing workforce, and beneficial geopolitical issues. Hence, we expect Indian growth to remain intact for some more time.
Q) If the economy is on a recovery path – does it make sense to allocate more money towards quality small & midcaps?
A) It is true that Midcaps and Small caps fell the most during the peak pandemic fear and hence is reasonable to expect them to recover.
Quality Mid and Small caps where there is a valuation comfort and a structural advantage will benefit in this market recovery.
Most of this valuation gap has now been bridged and we need to select companies whose core business outlook is robust and not valuations alone.
Q) FII flows topped Ra 1 lakh cr in 2020 – do you think the trend will continue now that we have a change of guard at the center? What is really helping flows is it the weak dollar or stimulus?
A) It is difficult to predict FII flows as they can move to any region of the world which they believe offers a good opportunity. As regards a new US President and the impact it will have on the world economy, and dollar it is difficult to predict at this juncture.
Q) How can one distinguish between a good and a great opportunity especially at a time when liquidity wave is lifting all the boats in the sea?
A) Liquidity has lifted all markets and asset classes. Ample liquidity helps lubricate the economy which can have multiple levels of positive growth. So, in a way markets and economies feed off each other when there is ample liquidity.
A great opportunity should have the ability to grow through various economic cycles and demonstrate pricing power such as FMCG and the pharma segments.
So, I look at the structural aspects of a business to distinguish between a good and great opportunity, apart from valuations.
Q) How should one position the portfolio in 2021? What is the Asset allocation strategy according to you?
A) We continue to remain optimistic about India’s growth prospects, and hence recommend equity. Equities also prove a better hedge against inflation as compared to bonds. We continue to prefer well-established companies who are leaders in their segments.
Q) Do you think a rise in inflation could disrupt bulls on D-Street?
A) Return of inflation does reduce the PE that the market is willing to ascribe to equities. However, inflation benefits corporates, and earnings growth also improves. So yes, there will be winners and losers, we need to be selective.
Q) What would you advise retail investors on how not to lose money in 2021?
A) We expect the Indian economy to recover and grow over the next several years. Markets, however, are based on emotions and there are several reasons why markets fall, fundamentals being one of them.
Sharp pullbacks cannot be ruled out but should be used as an opportunity to consolidate and build equity positions.
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