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Believe in India's growth story and stay invested, says AEGON Religare CIO

Barring land and Goods and Services Tax, I think the government has done a decent job and the benefits will accrue gradually over a longer period of time.

Rahul Oberoi   New Delhi     Last Updated: June 26, 2015  | 13:59 IST
Saibal Ghosh

Saibal Ghosh, chief of investments and business development, AEGON Religare Life Insurance tells that the Modi government has done a decent job and the benefits will accrue gradually over a longer period of time. do you see the domestic equity markets post rate cut? Can we see further rate cut this financial year?
Ghosh: Market dynamics do not get changed with one or two rate cuts. I think the disinflationary forces and negative output gap in the economy will ensure that consumer price inflation (CPI) will fall in line with the Reserve Bank of India's (RBI) guided glide path and within the time frame. However, monsoon disappointments or sudden spike in oil price kind of factors may threaten divergence of CPI from such path temporarily but directionally. I am confident that we are very much on the projected glide path set by the RBI. I am hopeful that we will see more rate cuts in the rest of the current financial year. key benchmark indices plunged around 2 per cent since the beginning of the ongoing financial year. What are the triggers that impacts market sentiments?
There will always be some upside and downside triggers to the market. However, we as insurance company managing people's hard earned money with a mandate to earn market-consistent returns over a longer period of time. Therefore, as fund managers of such long-term mandates, it is more important for us to recognise the direction of the market rather than try to ride every market wave. I believe this is just the beginning of a fresh cycle, where the equity portfolio needs to be designed to reap optimum benefits as a result of economic upturn. It is also not unusual that in an up-cycle such as this, the market tends to overshoot the fundamentals and correct from time to time. However, the recent correction could be attributed to corporate earnings, which disappointed in the last two quarters of the previous financial year. I have not seen any major disappointments in cyclical stocks. However, expectations were also low from these stocks. What steps investors and companies should take to insulate themselves against a Federal Reserve rate hike, if it happens?
We have never witnessed this magnum of liquidity in history. Therefore, it is difficult to gauge at current juncture what will be the repercussion in the event of this unprecedented liquidity being withdrawn or Fed hikes rate for that matter, albeit gradually. The Fed is also aware of this risk and therefore it is giving enough notice to the market to absorb the news. But deferment of inevitable is not the solution to this problem. Besides, it is not only the US rate hike, but also the dollar strengthening that is doing the damage.
As specific to the Indian equity market, I believe that there will be some pull-back effect for sure as emerging market funds are hugely overweight on India (to the extent of more than 400 basis points). Besides, holding of all FIIs put together is reaching half of entire free float available in the market. Having said that, I also believe that equity investors finally chase growth and there is not much alternative to India in the globe at this point. Therefore, there will be some pull-back effect, but the downside of the Indian equity market will hopefully be protected.
To investors my advice is when the cycle changes, after the initial euphoria settles down, the market could turn extremely volatile and at times may get further aggravated by external factors. Do not try to time the market, believe in India's growth story and stay invested. Remember the saying that any time is good time as long as it is for long time. How do you see the present valuation of Sensex and Nifty? Where these indices are heading?
I would not like to view the market valuation from one year forward multiple basis as against 10 years or 5 years average, especially when we are at the cusp of an economic recovery. The current market cap is around 70 per cent of the GDP, which is not cheap or very expensive on the historical scale. I firmly believe that as a fund manager, our job is not to predict the market within a timeframe, but to recognise the direction and try to outperform the benchmark over a longer period of time. How do you rate the Modi government till now? What is your expectations from the government this year?
Barring land and Goods and Services Tax, I think the government has done a decent job and the benefits will accrue gradually over a longer period of time.


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