'Expect continuous policy response from govt and RBI for sustained economic revival'

Though we are seeing modest recovery in business activities on a sequential basis, domestic demand still remains in ]contraction mode. We expect continuous policy response from the government and the Central bank for a sustained economic revival, Poonam Tandon, CIO at IndiaFirst Life Insurance Company said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpts:

Q: What are your overall expectations from September quarter earnings? What are those sectors which will perform better or weak in terms of earnings in September quarter?

On an overall basis, we expect Q2 earnings to be encouraging and better-than-expected given that the recovery is underway. We believe this quarter as well commentary for BFSI on provisioning and restructuring will be key monitorable. Sectors such as FMCG, Auto and Consumer Durables would give indication about the real demand recovery at the consumer end and sectors like IT, Pharma, Agriculture are expected to surprise positively.

Q: What are those sectors which one should add, hold or delete from his/her equity portfolio now, why?

Over the last six months, the markets have seen sectoral shifts in terms of preference for IT and Pharma as these sectors are undergoing structural changes whereas sectors such as BFSI, Capital Goods have been underperforming reflecting the economic reality. While we believe prospects for IT and Pharma continue to look promising, we would also consider quality companies within the underperforming sectors (BFSI, Capital Goods, Auto & Auto Ancillaries, Metals) due to relatively attractive valuation for a 3-5-year investment horizon.

Q: Given the gradual rise in the equity market amid consolidation, do you feel the benchmark indices can hit earlier record highs by December-end? Is it a buy on dips or sell on rally market?

We recommend being selective and use any market correction to accumulate quality companies. The ongoing revival of the economic activity coupled with continued support from the government and the RBI in terms of pro-growth and liquidity measures would further aid sentiments. Nevertheless, it is also important to note the key risks which could lead to higher market volatility in the near term – outcome of the US election, worsening of the pandemic situation and geopolitical issue.

Q: Given the consistent outperformance by Mid-cap and Small-cap indices, do you expect both these indices to end the year 2020 with more than 20 percent gains?

The broader markets which have been a laggard in the last couple of years have started showing some positive reversal in trend. We believe some well-run businesses with good cash flows capabilities and potential to adapt to changing environment to recover rapidly can outperform in the medium-long term.

Q: Do you really expect another fiscal stimulus package from the government? It was one of reasons behind recent rally?

The pandemic has caused severe stress in the economy, which led to sharp correction in the markets in March given the uncertainty. Subsequent reopening of the economic activity coupled with stimulus support helped improve the market sentiments. The second factor that have aided the rally is the excess liquidity given the low interest rate scenario globally. Though we are seeing modest recovery in the business activities on a sequential basis, domestic demand still remains in a contraction mode. We expect continuous policy response from the government and the Central bank for a sustained economic revival.

Q: Do you think the government should reconsider GST rates and ease more compliances/regulations, to boost Indian economy?

In our view, reducing GST rates will incentivise consumers to spend thereby boosting domestic demand over a period. On the regulations front, the government has been focusing on reducing the compliance burden to give flexibility to business units in the current difficult times. The recent proposal of unified compliance platform is also a good initiative which will simplify all processes, bring clarity, efficiency and transparency and will certainly provide greater ease of doing business.

Q: What are your thoughts on RBI monetary policy decision and commentary? What's more RBI can do to revive economic growth?

As expected, RBI kept the rates unchanged unanimously. We believe the overall commentary remained extremely accommodative with priority on growth revival and continued focus on liquidity infusion to support the economy and revive stressed sectors. The directional measures announced for growth and liquidity infusion in all buckets such as continuing OMO purchases in G-Sec, conducting maiden OMOs purchase in SDLs which will help reduce the spread is significantly positive . Further, availability of on tap TLTRO will help in reducing credit spreads and channelize credit at lower interest rates, extension of HTM limits for banks and rationalising risk weights for housing loans till Mar’22 will aid growth.