The fundamentals of the Indian markets look strong, and the domestic flows into the market seem to be making a steady rise, fostering a positive growth environment.
“We believe that as we advance, a well-articulated, albeit aggressive, tapering by the US Federal Reserve would not be very disruptive for the Indian markets,” says Harshad Patil, Executive Vice-President and Chief Investment Officer at Tata AIA Life Insurance Company.
With the expectations of interest rates going up, equity would remain one of the better asset classes to stay invested for a long-term investor with a 3 to 5-year view, Patil shares in an interview with Moneycontrol. Excerpts from the interview:
Do you think the market will correct more in the coming months even after falling more than 6 percent from record highs?
Over the past year, the markets have rallied on the back of resumption in economic activity, coupled with surplus global liquidity. The uncertainties around the new variant of the coronavirus has impacted the market sentiment, leading to a correction. We believe that valuations remain a tad high in some pockets of the market and could lead to continued market volatility going forward.
What is your reading on the RBI Monetary Policy Meeting?
The RBI is expected to normalise policy in a calibrated manner as the economy needs continued policy support to nurture recovery. Hence, we continue to expect the RBI to remain accommodative in the near term and expect the repo rates to stay on hold in the near term.
From now on, the moderating headline inflation outlook will provide space for the RBI to sustain its accommodative policy stance as the growth rate is yet to recover to the pre-pandemic levels.
What could be the reasons behind significant FII selling in the equity market? And, what about the rising dollar index?
Relatively high valuations would be the key reason for the outflows, as other emerging markets seem attractive, compared to India at the current levels. The rising dollar index also suggests money moving back to the developed markets. The FII selling in the secondary market can also be attributed to huge issuance in the primary market that was seen in November.
Is it the time to turn cautious on the equity market and shift focus to other asset classes?
While the volatile scenario could persist in the market in the near term, we see the recent quarterly financial performance to be impressive. The earnings outlook is also expected to remain strong for the next fiscal year. With the expectations of interest rates going up, equity would remain one of the better asset classes to stay invested for a long-term investor with a three-to-five-year view.
Do you think Indian markets are least bothered about tapering and rate hike in the US?
The near-term correction and volatility are probably due to the rather aggressive tapering by the US Federal Reserve affecting the global liquidity and the nascent impact of the new coronavirus variant. However, the Indian market fundamentals remain strong, and the domestic flows in the market continue to rise steadily. So, we believe that as we advance, a well-articulated, albeit aggressive tapering by the US Federal Reserve would not be very disruptive for the Indian markets.
What are the key themes that you are betting on for 2022?
While we prefer to do a bottom-up stock selection, focusing on the company’s fundamentals, rather than betting on themes, the key sectoral picks would be in the capex space aided by PLI (production linked incentive) and industrial growth and the housing construction theme.
Given that the financials have been relative underperformers, we could see opportunities as the restructuring-related concerns ease. Moreover, the select tech space should continue to do well.
What are the top wall of worries that the market is going to face?
Somewhat rich valuations across sectors make it a little difficult for the broad market to sustain the rally seen over the last 18 months or so. Moreover, one would have to assess the impact of the new coronavirus variant on the improving economic activity.
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