What are the key risks?
We have assembly elections spread over the next 12 months. Also, we expect the US Federal Reserve (US Fed) to hike rates thrice this year. Inflation is looking up in India as well. All these are creating headwinds. If the monsoon disappoints, the markets
will have another problem to deal with.
On the brighter side, the impact of demonetisation and implementation of goods and services tax (GST) is behind. Demand has started picking up for consumer goods and on the infrastructure /investment side. The government is spending a lot on urban infrastructure, roads, affordable housing, railways, ports and others. Also, corporate earnings are looking up after almost no growth for seven years.
Are markets factoring in the possibility of higher inflation and sub-par monsoon?
Inflation, yes. They are not factoring in a bad monsoon yet. There is no data or trend available around monsoon for markets to get worried.
How are markets likely to react to the results of state assembly elections scheduled over the next 12 months?
I do not see the results of the state elections as a verdict on the general elections scheduled for May 2019. However, we do see a hype around the event, which creates market volatility. This is what we expect in 2018 as well.
In politics, one year is a long period to predict anything. For now, markets expect the Narendra Modi government to return in 2019. Any hypothesis that this will not happen will create volatility.
What policy change or initiatives do you expect from the government till the general elections?
There will not be any major policy change. It is now about accelerating the implementation of the policies announced thus far. The focus will be to kick-start economic growth, create jobs and boosting incomes, especially rural. There has been a renewed focus on infrastructure development.
What is your message to retail investors?
Stay invested in the markets and not get perturbed over the near-term disruptions. Indian economy is on the verge of a take-off and investors should ride this with a long-term vision.
Which sectors are you bullish on?
Financials will continue to do well. Most people do not realise the wealth that will get created by this sector. I am also bullish on the Indian consumption story. As the per capita income improves over time, spending power will go up. This will boost consumption-related stocks. Information technology (IT) stocks should do well in CY18. Growth is coming back in IT and valuations are not expensive. A weaker rupee will also benefit these stocks. We also like commodity-related plays. Limited capacity expansion with huge demand on anvil will make them attractive over the next three-four years.
What is your view on public sector banks (PSBs)? Should one use the dip to bottom fish?
It has been known for a while that the public sector banks were misused. There have been instances of political interference. There was aggressive lending by PSBs from 2009 to 2014, which partly boosted capital expenditure in companies. Public sector banks need better governance framework. The market-share of PSBs will go down over time. Consolidation is the need of the hour. From an investor standpoint, it is better to stay in private banks. PSBs can, at best, be a short-term trading idea. Private banks will capture the market share from public sector banks.