Bullish on India’s growth story

Dr V K Vijayakumar, investment strategist at Geojit BNP Paribas in Kochi, is keen on keeping IT and pharmaceutical stock in his portfolio. Courtesy Dr V K Vijayakumar

Dr V K Vijayakumar, investment strategist at Geojit BNP Paribas in Kochi, shares his insights on the Indian equities market.

What is the asset class and geography you are focused on?

Our main focus is equity in India. We see debt as a good investment opportunity now. Investment in debt in India will yield good returns since we expect interest rates to decline next year. I am bearish on commodities, particularly crude, and neutral on gold.

What is the outlook for the month ahead?

The market is likely to be more volatile than during the last four months. Volatility will increase, but sustained declines or up moves are unlikely. During the last few months, the Indian stock market has been a “buy on dips market”. This will slightly change and we are likely to witness some profit booking and “selling on rallies”. However, we don’t expect any major crash in the Indian stock market. In the worst scenario, barring unforeseen circumstances, it may correct by 4 per cent to 5 per cent from the present levels.

What are the main risks, either upside or downside, to the outlook?

The main risk to an upside is the continuous selling by foreign institutional investors (FIIs) witnessed in the last week of September. Even though FIIs bought stocks worth 51 billion rupees (Dh3bn) in September, this is a seven-month low. There is a slight uptick in risk aversion globally, due to growth scare for the global economy, and dollar appreciation has increased the risk aversion in emerging markets. If the FII selling continues, sentiments are likely to be adversely affected. An event that can rattle markets globally would be an earlier than expected and sharper than expected monetary tightening in the United States. We, however, feel that the probability of this is low. Recent data relating to the global economy (the IMF has cut global growth projection to 3.3 per cent from 3.7 per cent in April) has adversely affected sentiments in global markets. Data from Europe, particularly Germany, is disappointing. Europe is likely to be in recession this year. Japan also is struggling. China is decelerating fast. Consequently, global growth will be subdued this year.

But from the Indian perspective, there is good news. The sharp fall in crude has substantially improved India’s macros. Petroleum subsidy, fiscal deficit, current account deficit and inflation are showing clear down trends. Consequently, India will be among the very few countries in the world, and perhaps the only one in the large emerging markets, to show improvement in growth and earnings this year. This will ensure that major market corrections will be bought into.

With the macro situation stabilising, economic growth and corporate earnings will pick up. This will facilitate further capital flows to India. Increasing participation by retail investors, as evidenced by the improvement in mutual fund inflows, is another positive bullish factor.

We need policy initiatives in India to achieve our potential growth. From this perspective the next budget will be crucial. If the “hope rally” is to transform itself into a sustained “performance rally”, policy initiatives are necessary. There is action on this front, but the market expects more.

What is the best investment at the moment?

If you are looking for sector specific investment options, we are bullish on IT and pharmaceuticals since there is clear earnings visibility in these segments. The US economic recovery is good news for the Indian IT industry. Besides, the Indian pharma industry is emerging as a global player. These two industries will continue to reward investors. Corrections may be used to buy into these sectors. We are also bullish on car makers and private-sector banks. Car ancillary is another bright spot.

What was the best investment you have been involved in?

We strongly advised our clients to buy mid and small caps last October before the sectoral churn started. Mid and small caps have appreciated substantially since then. Two years ago we recommended HCL Tech, Lupin and SKS Micro. Investment in these stocks has yielded returns that have beaten the market by a big margin. We have been consistently advising clients to accumulate quality IT, pharma and private-sector banks for quite some time. Switching to IT, pharma and private-sector banks proved to be very good decisions. Personally, buying V Guard in 2008 was a very good investment.

What was the worst?

We were bullish on L& T Finance Holdings. For the present, this has been a disappointment. But we continue to be bullish on this stock for the medium to long term.

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