WF: Is this correction a rotation out of India and into other markets by FIIs, or is it a case of erasing the Modi premium that markets built in 2014 or is this part of a global risk-off trade?
Naren: No market goes up in straight line. This rally has not seen any correction for a long period of time. Given the fact that earnings did not pick up, we believe that this correction was logical. Even in the 2002-07 bull market, there were many corrections throughout the phase; while, this just maybe the first correction of the current phase.
In our opinion, this correction is healthy because it ensures that investors moderate their return expectations. Also, investors who are still underinvested in equities get an opportunity to invest in such times. The potential for India's recovery in the long term provides a compelling case for investing now.
WF: What is your prognosis for our equity market for the rest of this financial year and what do you see as the key drivers?
Naren: Markets are likely to be volatile till the first interest rate hike in the US is digested. This phase does not affect the long-term compelling case for Indian equities with a moderated return expectation. We believe, 2015 is the year for investing in equities with a horizon of three years and more.
From here, the key drivers for the markets could be a reasonably good monsoon, declining crude prices and deleveraging of infrastructure and real estate sectors.
WF: Is the rupee's depreciation a cause for concern? Events of 2013 are still fresh in many minds.
Naren: The Reserve Bank of India has been following a robust policy to reduce volatility in currency which has led to lesser worries on currency as opposed to the period of July 2011 to July 2013 when the Indian currency was very volatile. A limited depreciation of 3-5 per cent should not be a cause of concern. We believe that it is healthy because the Indian inflation rates are higher than global ones.
WF: How are you positioning your equity portfolios to align with the current market scenario?
Naren: We believe that a cyclical revival will eventually happen. Consequently, cyclical sectors like infrastructure and financials could do well in the long-term. Also, given the fact that rupee has appreciated, technology sector which has been hurt by this rupee movement is likely to benefit, since we believe that rupee is not likely to continuously appreciate against Euro. We have invested in technology and financials after the recent corrections. Sectors like consumers appear to be richly valued and they continue to deliver good returns. Therefore we remain underweight on the same.
WF: How should distributors guide their investors now, who are turning a little nervous with market volatility?
Naren: More often than not, volatility is perceived as a risk, but it is in fact an opportunity. In this market scenario, distributors should guide Investors to adhere to asset allocation which spreads the risks across asset classes.
Following this principle would have indicated the investor to remain invested even in 2013 when there was tremendous pessimism in the equity market as well as now, in the current market correction. This is a good long-term strategy and helps avoid the tendency to redeem at market bottoms and invest at market tops.
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