Ajit Banerjee, Chief Investment Officer at Shriram Life Insurance, is of the opinion that if the coronavirus situation is controlled in the country with vaccination mitigating the third wave, India’s GDP growth for FY22 could be around 10-10.5 percent,
He expects the Reserve Bank of India’s monetary policy committee (MPC) to continue maintaining its accommodative stance in the June policy with no changes in the policy rates. Edited Excerpts:
Q: Maket is back to all-time high levels. Do you expect the momentum to sustain and push the Nifty towards 20,000 and Sensex near 65,000 mark in the coming year?
The market has shown resilience after the outbreak of the second wave and its northward movements continued in a broad-based manner. There have been some instances of markets taking a dip marginally, but again, it managed to regain the lost grounds in the next few trading sessions every time and continued its onward journey.
Though there are certain pain points arising out of the impact of economic disruptions. For example, loss of life and livelihoods, expected change in the consumers’ behaviours especially w.r.t. purchase of discretionary items and increased propensity to save for rainy days. Markets are always forward-looking in nature. Taking cognizance of the acceleration in the pace of vaccination drive, increased availability of vaccines in the near future, long term growth potential of the country and strong fundamentals aided by the government’s firm determination towards increasing the ease of doing business in the country, we are seeing the market marching ahead as it believes that this crisis will be won over.
Nevertheless, as a matter of adequate caution, we cannot rule out the fact that in the markets next course of the journey from this point there would be instances of market corrections happening due to interim profit booking done by some investors as the valuations look stretched. Also, gradual monetary tightening policy adopted by global central banks including the Reserve Bank of India, rising inflation levels and rise in interest rates in fixed income securities may lead to some switches in asset allocation. Having said that, we can still expect the momentum to continue in its journey of climbing new highs towards the levels mentioned in the question.
Q: Do you think the expected recovery post easing of lockdown will help India report double-digit growth in FY22?
Assuming that India’s second wave of infections have peaked in the month of May and the unlocking phase would commence gradually, duly supported by higher availability of vaccines and the vaccination drive extended to the age group of 18-45 years, would instil a lot of confidence amongst common masses to resume their normal activities and resume mobility.
RBI has stated that the macroeconomic costs would be limited to Q1FY22 with possible spillovers into July. However, the primary cause of worry is during the first wave was that rural India was insulated from this and the agricultural output and the rural demand provided solid support in economic recovery. As opposed to the first wave the second wave hasn’t spared rural India which is also having a toll on the agricultural output and casting a shadow on the rural consumption levels. The IMD’s forecast of a regular monsoon this year is the silver lining at this juncture which would enable a bumper agricultural production provided it doesn’t suffer from agricultural workers supply led disruption.
The onset of the second wave has necessitated revisions to growth projections. As per the data shown in the available high frequency indicators for April & May 2021 it presents a mixed picture. While mobility and sentiment indicators have moderated, several activity indicators have held their own and shown resilience in the face of the second wave. GST collections crossed Rs 1 lakh crore mark for the seventh consecutive month in April and notched up the highest level on record, suggesting that manufacturing and services production has been maintained. Hence if the overall COVID situation comes under control with no resurgence of COVID-19 in the form of third wave during the financial year 2021-22 then we can expect a GDP growth around the level of 10 percent to 10.5 percent which is also in alignment with RBIs growth forecast.
Q: What are your broad expectations with respect to the upcoming MPC meet scheduled for three days between June 2-4?
We can expect the Reserve Bank of India’s monetary policy committee (MPC) to continue maintaining its accommodative stance in the June policy with no changes in the policy rates. The financial market is expecting MPC’s view and guidance on the challenges to growth and how it plans to manage it. The need of the hour is to reassure that system will be fed with sufficient cheap credit and RBI would continue to focus on the effective transmission of this cheap credit to the desired segment.
Q: What are the top five sector ideas that one can add to the portfolio despite the COVID crisis, and why?
The basic underlying assumption made here is even after economy is on the recovery path post COVID second wave the business would continue to operate under the new normal circumstances in the near future and hence the focus should be on BFSI, Pharma & Healthcare, IT, speciality chemicals and metals stocks.
Under these new normal operating environments it has been established that the enterprises which had invested in quality IT infrastructure and systems had clearly an edge over its peers who haven’t acted like wise hence demand for IT and IT’es would continue to dominate as enterprises would like to bridge the gap and come into a level playing field.
As these are periods of health driven crisis hence pharma sector and healthcare would continue to see increased demand for its product and services. Indian Pharma companies have few clear and sustainable growth opportunities arising out of demand from – domestic market, US generic market, contract research/manufacturing, and emerging markets (EMs).
The large banks and NBFC’s have already made significant provisioning of bad loans in last year and have got themselves adequately capitalised. The life Insurance companies and Non- Life insurance companies are also witnessing an increasing demand for the life protection and health insurance portfolio respectively. With a reduction in operating expenses to a significant level and with prudent risk mitigation strategy and pricing levels in place BFSI sectors would witness an improved growth and profitability in the future period.
Speciality chemicals have off late caught lot of attention and growth opportunities in view of the stable crude prices, cheaper rupee and willingness of global buyers to look beyond China for raw material sourcing.
India would require a significant amount of investment in infrastructure and reality sector to propel economic growth hence the demand for metals would be significant going forward. This clearly remains Governments focus areas though the pace of these investments couldn’t pick up the required pace with the resurgence of the second wave.
Q: Given the improving economic data points in the US along with easing COVID pressure amid large vaccination, do you think the Federal Reserve can hint about interest rate hikes and slowdown in bond purchases plan in the second half of 2021?
In the immediate near term, it appears that US economic growth will remain sufficiently firm in 2021-22 in view of the massive fiscal stimulus from the federal government which would allow the Fed to begin to rein in quantitative easing (QE) from 2022 and contemplate upon raising interest rates from 2023. Unconventional monetary policies, including QE, will remain a feature of US economy for few years, at least. The main concern remains that if the monetary stimulus is unwound early for instance, in response to a spike in inflation, this will put public debt on a worrying path and complicate debt servicing.
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