|
WF : The dip in oil prices has come as a welcome relief for our CAD and fiscal deficit. What is your outlook on oil prices? Is the downtrend a secular one or just short term relief for us?
Manish : The correction in crude oil prices has abated the worries in areas such a current account deficit, core inflation, oil subsidies, fiscal deficit and corporate margins. Till the US Shale gas production keeps on increasing, we expect the oil prices to remain range-bound, and unlikely to shoot up.
WF : Globally, Europe is slowing down again, China's momentum is slacking and even though growth in US seems a lot healthier, the US Fed seems worried about its sustainability. Are global cues on growth something we should be worried about as far as our markets are concerned?
Manish : The global economic outlook is mixed - on growth, US is doing well but Europe, Japan and China are struggling. Overall given the structural issues in most developed economies like demographics, debt and so on, it does look like these regions could continue to be in a low growth and low interest rate environment for the near future.
However, from an Indian economy point of view, we are on a steady upward path over a period of time. Consequently, there is a possibility of good numbers coming out in the following months on inflation, industrial production and various other fronts. This will further add to the optimism in India. Therefore, on a whole, we believe that the markets are not at the top. We expect to see reasonable returns in equity over the next three years.
WF : Your fund presentation is aptly titled "Moving from expectations to execution". From an execution point of view, what tangible signs of revival in growth are you seeing, and in which sectors is this most evident now?
Manish : We are witnessing a silent economic transformation with major macroeconomic indicators showing a positive outlook. The macro stability conditions are expected to improve further with the key driver being sustained deceleration in Consumer Price Index (CPI) Inflation. The industrial index of production (IIP) is slated on the growth trajectory and even the diesel consumption is ticking up, which signals a turnaround on the supply side.
If we look at auto sales, they have already done very well now. We also see the consumer durable loan growth on an uptrend which indicates early signs of a turnaround on the demand side. So we believe that the early stage cyclicals are in for a good time.
WF : Which are the sectors where revival in growth is not yet seen?
Manish : We believe there are early stage cyclicals and there are late stage cyclicals. The early stage cyclicals are some sectors which tend to grow faster than the economy and hence stocks in these sectors have potential to outperform. These sectors include financials, healthcare, technology, consumer discretionary etc.
The late stage could be industrials, property and so on; their performance will hinge on how deep this cycle is. If we are able to sustain growth without too much of inflation and current account deficit (CAD), then the late stage cyclicals could start performing well.
WF : You are focusing on 5 key sectors for the ICICI Prudential Growth Fund - Series 3 : Financials, IT, Consumer Discretionary, Healthcare and Industrials. Out of these, consumer discretionary and healthcare have seen a significant bull run in the last 3 years and currently, MF industry exposure to financials and IT are at historic highs. A concern therefore is whether these sectors are already over-owned. How valid is this fear?
Manish : The valuation comfort comes by looking into the future because therein lies confidence of an economic recovery over the next three years. This is true not only for the consumer discretionary and healthcare sector, but for many other sectors looking at the 2016 and 2017 valuations. For consumer discretionary, the demand has high correlation with GDP growth; and, with increase in the GDP growth, the demand is set to increase which can lead to growth in revenues.
Within pharmaceuticals, it is a very stock specific sector, one has to see the pipeline in US for each company, their domestic business and other such parameters. So overall we retain a fairly constructive view on that sector as well. Further, we expect Healthcare industry to grow above nominal GDP growth rate. Since the outlook for the economy, in the next three years, does look to be good, it may be a case where the returns come front-ended and continue to be so.
WF : Will you have a bias towards any market cap sizes? Between large caps and the mid & small cap space, which appears to be more attractive today?
Manish : The fund aims to opportunistically invest across market caps. The mid-cap index has clearly overshot the large-cap index in terms of valuation. The two are now practically at the same level, which happens very rarely. Broadly, the mid-caps have underperformed in the past 3-5 years.
Now this segment has caught up with the large-caps. With both segments at the same level, the one that sees a higher growth in earnings will perform better.
The previous two cycles have shown that after the initial market rally, where small- and mid-caps outperformed, large-caps came back to the fold. Therefore, large-caps look like an interesting segment now, but there are interesting mid-cap businesses that can be considered even now. Finally, what matters is whether one is invested in quality businesses; if one has invested in prudently managed companies, it shouldn't matter much.
WF : Domestically, optimism is running quite high. It is perhaps prudent in such times to be aware of potential risks to the market's momentum. From a macro point of view, what are the key risks you will be watchful about at this juncture?
Manish : In October 2014 the US fed is likely to stop quantitative easing. Moreover, during that period, there is a possibility of seeing a significant quantitative easing coming out of Europe and that can take care of the quantitative easing drop in the US. We will be keenly watchful of these events. In the global equity market - particularly the ones with zero interest rates - there has been an uninterrupted three-year bull rally, without any big corrections. Now a slowdown in these markets could translate into an equivalent slowdown in the Indian market as well. Globally, there might be a correction in 2015 and India could participate therein, because we are not undervalued.
However, having said that, the Indian economy is in a much better shape, since the current account deficit problem is not as big as it was in the past, inflation is on a downtrend, forex reserves are much higher and growth impulses are picking up. This is the market one can be positive about. But one should also not expect the returns that were made in the last one year. Investors need to moderate their return expectations from their minds and then look at investing in equities.
Private and Confidential for reading and understanding only for Distributors and Advisors of ICICI Prudential Mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
The information contained herein is only for the reading/understanding of the registered Advisors/Distributors. All data/information used in the preparation of this material is specific to a time and may or may not be relevant in future post issuance of this material. ICICI Prudential Asset Management Company Limited (the AMC) takes no responsibility of updating any data/information in this material from time to time. The AMC (including its affiliates), the Fund, ICICI Prudential Trust Limited (the Trust) and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner.
Nothing contained in this document shall be construed to be an investment advise or an assurance of the benefits of investing in the any of the Schemes of the Fund. Sectors/stocks mentioned in the article do not constitute any recommendation and the Fund through its schemes may or may not have any future position in these sectors/stocks. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Share this article
|
