DAILY VOICE | More steam left in ongoing rally despite very high valuations, says Sampath Reddy of Bajaj Allianz

DAILY VOICE | More steam left in ongoing rally despite very high valuations, says Sampath Reddy of Bajaj Allianz
September 07
10:02 2021

Bajaj Allianz Life Insurance CIO Sampath Reddy believes that the ongoing market rally has more steam left despite high valuations as the withdrawal of market-boosting liquidity would be gradual.

In an interview with Moneycontrol’s Sunil Shankar, he said that while the market has rallied substantially in the past year, corporate earnings, which have been robust in this period, are likely to sustain their growth.

Investors need to have a well-balanced asset class exposure based on their individual risk appetite, said Sampath, who has been with Bajaj Allianz for a decade and oversees total assets under management of over Rs 70,000 crore in equity and fixed-income assets.

Edited Excerpts:

Looking at the consistent rally to new records, the market seems unstoppable. Do you think it is the time to be cautious? Can the Sensex hit the 60,000 milestone by the end of 2021?

The current bull market is driven by the monetary and fiscal stimulus. Given the strong liquidity from both domestic sources and as well international investors, the market has been making a new high. Even though the economy is recovering from the Covid impact, we believe the withdrawal of liquidity is going to be gradual. Hence, we think that the ongoing rally has more steam left in spite of very high valuations. At this juncture, tapering of monthly bond purchases by the US Fed is factored in. Even the tapering of this bond purchase means addition to the liquidity albeit at a slower pace. Withdrawal of liquidity and subsequent rise in rates is some time away.

The FMCG sector gained momentum and rallied more than 7 percent in August. What is the reason and is it sustainable? Should investors continue holding these stocks?

The FMCG sector has done well during the lockdown period as this sector was least impacted. And in the subsequent rally in the market, FMCG has underperformed. The recent up move in FMCG is more to do with catch up in the underperformance. This sector offers very good companies with high quality management and steady growth. We believe this sector offers good potential for long term investors.

In which sectors can the value investing principle of Warren Buffett be applied now and why?

As the overall market valuations are substantially higher than the long-term average, most sectors are trading at unsustainable levels of valuations with little or no headroom for any disappointment in earnings. Margin of safety across the sectors is low. We feel that banks currently offer attractive value to investors as credit growth is expected to increase and the asset quality to improve as the economy is opening up. Metals sector also offers good value as the prices of aluminium and steel have moved up substantially. Automobile sector should also witness an improvement in sales volume, post the resolution of semiconductor chip shortage issue.

Listings in August – Nuvoco Vistas, CarTrade Tech, Windlas Biotech, Chemplast Sanmar and Aptus Value Housing Finance – disappointed investors and spoiled the mood of the primary market. Do you think it will impact upcoming IPOs and is valuation a big concern for these IPOs?

Quality of the investors in some of the IPOs recently was a concern as most of the investors were looking to profit on the listing rather than investing for the long term. The poor listing gains in some of these recent IPOs have kept the leveraged participant in the IPO market away. However, there is a very good appetite for new companies getting listed through IPOs from the long-term investors. We believe that good companies will continue to see buoyant demand from the investors.

Considering the stellar rally in the equity market, do you think it is the time to reduce exposure to equity in a portfolio or rebalance the portfolio?

While the overall market valuations are high, the liquidity environment is supportive to the market. Even though the market has rallied substantially in the last one year, the corporate earnings have also grown very well during the same period. The earnings growth is expected to sustain into FY23 as well. It is difficult to call peak and troughs in the market hence investors should have a well-balanced asset class exposure based on their individual risk appetite.

Do you think expected Fed tapering will have less impact on the domestic market, given India’s forex reserves?

Unlike 2013, where our markets reacted negatively to FED taper announcements, this time we believe we are in a better position to handle the impact. Indian economy is recovering sharply and our external position is strong with high forex reserves and low current-account deficit, which provides the central bank adequate space to deal with external shocks.

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