MNCs can also capitalize on tech and product support from their global parents for new and more relevant product launches.
We like MNCs that are listed in India for several years due to their technological strengths and good governance practices. These companies are relatively better placed within this pandemic situation as many of them have strong balance sheets, higher cash balances, and less leverage (debt), Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) Prime Minister Modi emphasized on Infra, fiber optics, cyber security in his speech on the occasion of Independence Day. What are your takeaways and how will it impact the sectors related to these?
A) The government’s focus has been on infrastructure, and it earlier had announced a large outlay of Rs. 110 trillion under the National Infrastructure Pipeline (NIP) over the next five years.
The finance ministry has already identified 7,000 projects under the NIP. This infrastructure push and government spending will help provide support to the economy amidst the economic slowdown, and especially the slowdown in gross fixed capital formation (GFCF) or investments seen over the past few years.
For the recovery of the economy, public/govt expenditure or investment is quite critical in the initial phase, and when the economy gathers momentum, then private investment starts to pick-up.
The government has also been focusing on increasing digital penetration/adoption in India. PM Modi announced three main initiatives in his speech viz.
National Digital Heath Mission, providing optical fiber connectivity to 6 lakh villages in 1000 days and new cybersecurity policy. We have seen the importance of digital adoption amidst the lock-down (in terms of greater reach and lower costs), and these announcements will further help to provide a thrust to the same.
Q) PM Modi launched a 'transparent taxation' platform recently. Your take on the announcement and will it impact markets and taxpayers?
A) This is a continuation of what was announced in Union Budget 2020. The objective of the platform is to achieve Faceless Assessment, Faceless Appeal, and implement the Taxpayer’s Charter (rights of taxpayers).
The scheme is about honoring the honest taxpayer and making their life easier. Also, under the scheme, the scope of various transactions to be reported in Form 26AS of an individual’s income tax statement has been widened. Therefore, the aim is to widen the tax base and increase tax compliance over time.
Q) What is your take on the markets? Do you think we could see some selling pressure when the vaccine actually arrives? It will be a classic case of buy on rumors and sell on news?
A) The news of good progress in vaccine trials has contributed to the positive sentiment in markets, and markets will continue to react to further developments/announcements.
The vaccine for COVID will help the economies to come back into full-scale production faster. It is difficult to speculate what will happen when the vaccine actually arrives, as markets tend to discount such news in advance.
Q) Which is the biggest risk for equity markets globally - is it the trade war between the US and China, or the outcome of the US Presidential elections?
A) In our view one of the key risks for equity markets globally is a) geopolitical tensions, which could lead to risk aversion and also impact global flows.
b) The market rally has been fuelled by strong global liquidity due to large monetary stimulus announced by major central banks around the world.
If there is any change in monetary policy stance in the future (albeit we don’t expect it in the near future), then that can lead to some of the global liquidity drying up.
And, c) with an escalation in COVID-19 cases in certain countries, a second wave of the pandemic (if it happens), could also pose a risk to the markets.
Q) What is your outlook on precious metals as a sector? Recently, it has got enough attention from D-Street. What is fuelling the rally in metals, and are there any top bets which investors can bet on?
A) Historically, precious metals like gold have performed well during periods of global uncertainties. Precious metal sector and gold has benefited from global risk aversion and safe-haven buying by investors, which has helped prices to hit record highs recently.
Data from the World Gold Council also shows that record inflows into gold ETFs in H1 CY20 have helped to offset demand slowdown from other sectors, especially gold jewellery demand—which plunged 46 percent YoY due to the lockdown and consumers being deterred due to higher prices.
The metals sector has seen some recovery, with the economy being opened-up and with high-frequency indicators indicating some recovery for the economy.
Also, with the earlier underperformance of the sector, valuations are quite reasonable, especially in certain pockets. However, we expect the sector to fare better once traction in the economic growth cycle picks up.
Q) Market might not go back to levels seen in March, but what would be a good level to enter in case we see a selloff in equity markets?
A) As we know it’s difficult to time the time market in the short term. But, we advise investors to use any market dips or market corrections to invest for the long term.
Historical data has shown that investing in past market corrections have been quite rewarding for investors over the medium to long term.
Q) What is your take on MNC stocks? Do you think they are better placed in this pandemic? If yes, which one tops your list any why?
A) We like MNCs that are listed in India for several years due to their technological strengths and good governance practices. These companies are relatively better placed within this pandemic situation as many of them have strong balance sheets, higher cash balances, and less leverage (debt), which may help to deal with the economic slowdown / recession.
MNCs can also capitalize on tech and product support from their global parents for new and more relevant product launches. Also, some MNCs, have also been doing share buybacks, which helps to provide some confidence.
Q) FIIs are net positive so far in the month of August in the cash segment of equity markets as compared to DIIs who are net sellers? What are your views?
A) Global liquidity and increased global risk appetite have helped in the pick-up in flows into emerging markets (incl. India) over the past few months, and India seems to be favourable positioned among FIIs--with its long-term fundamentals intact, although this year we are also likely to see a recession along with other countries globally.
Recovery in high-frequency indicators post the lock-down, and better than expected Q2 FY21 corporate earnings seasons have also helped sentiment.
FII flows into the Indian markets have been healthy over the past few months, post the record outflow seen in the month of March (amidst the sharp correction in markets).
In the month of August so far, FII flows have been quite robust, and also has been helped by some large QIPs.
Meanwhile, DII flows (especially from mutual funds) have slowed down over the past few months, and in the month of July we saw outflows from domestic equity mutual funds after a long time, and SIP flows also slowed down a bit, but still are quite healthy.
This could be because of some lump sum investors booking profits, with markets recovering significantly after the earlier correction. In the month of August so far, DIIs continue to be net sellers in the equities.
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