However, this time around neither is inflation going to be a major cause of concern nor will it lead to sharp rate increases, according to Gautam Sinha Roy, executive vice president and fund manager – equity at ICICI Prudential Life Insurance Co.
“While the hike in this rate cycle has been steep, we believe we are somewhere close to the peak of the cycle…So, from the markets point of view, fear of further sharp rate hikes leading to dampening of risk appetite is unlikely,” Roy said in an interview with ETMarkets. Edited excerpts:
Inflation and rate hike concerns are making a comeback both on the domestic andglobal fronts. Is this likely to dampen the Indian market momentum in the near term?
We believe inflation is not going to be a major cause of concern in the medium term. While food inflation might remain transiently high, we expect the overall headline inflation number to remain range bound. The RBI will likely look at this as a transient phase while maintaining a cautious stance, leading to high rates for longer. While the hike in this rate cycle has been steep, we believe we are somewhere close to the peak of the cycle (albeit, an elongated one). So, from the markets’ point of view, fear of further sharp rate hikes leading to dampening of risk appetite is unlikely.
Even though benchmark indices have come off their all-time highs, the momentum in the broader market remains upbeat. What’s driving this euphoria?
The momentum in the overall market is a function of liquidity and incremental money flows into the broader market. A large swathe of mid and small cap companies are delivering strong earnings growth, leveraging the buoyant economic conditions which is attracting investments in these category of stocks. This liquidity is the major driver of the current euphoria being seen in broader markets.
How much AUM do you directly oversee, and could you help with the performance of the Multi Cap Growth funds over the last 1-3 years?
We at ICICI Prudential Life Insurance manage a total AUM of Rs 2.7 trillion, with 45% being in equities. Out of this, Rs 250 billion is in Multicap strategies. Our flagship Multicap scheme has returned 14.62% over the past year and 20.30% over the past three years, ended July.
Barring July, Multicap funds have seen subdued inflows, say in the last 1 year. What’s keeping investors away?
Inflows have been skewed towards the small and midcap category, partly due to the performance divergence between the sub-asset classes and the thought process evolution of retail investors.
The robust returns of mid and smallcaps have led to an increased risk appetite in the minds of retail investors.
This has taken the spotlight away from the large and multicap funds, leading to subdued inflows. We believe this period of muted inflows provides our investors with a good opportunity for investing in large and multicap funds from a medium to long term perspective, with higher prospects of risk adjusted returns, going forward.
Could you help with the top 5 sectors you have exposure to in the Multicap fund?
Currently the major exposure in terms of sectoral breakup would be BFSI, consumer (both staples and discretionary), IT and industrials, in that order. However, we believe that bottom-up selection is very important and should be focused on as well when looking at the multicap space.
What’s your read through of the Q1 earnings scorecard of India Inc? Which sectors are you bullish/bearish on post the results?
The corporate earnings for FY24 have begun on a healthy note. After a solid 23% earnings CAGR over FY20-23, the Nifty 50 posted 32% earnings growth in Q1, a beat versus consensus expectations.
The growth was fuelled by domestic cyclicals, such as BFSI and auto. Healthcare has made a strong comeback with 24% earnings growth after six consecutive quarters of flattish earnings.
The spread of earnings was also decent with most large and mid-cap companies either meeting or exceeding profit expectations. The ongoing premiumisation trend has continued, with high-end consumption stocks doing well.
Margins accelerated on the back of lower input costs, which seems to be stabilising at the same levels.
Going forward, we expect earnings to remain healthy, with over 20% earnings growth expectations for Nifty 50 in FY24.
We remain overweight on financials, consumption, IT and industrials. We are seeing strong earnings growth continuing in a broad spectrum of companies from within these sectors.
Amid inflation concerns, firming crude oil prices, and higher bond yields, what kind of asset allocation strategy will you recommend to investors?
We would like to reiterate the belief in the India story, which is a decadal theme of superior growth relative to the rest of the large global economies. The rate cycle seems to have played out and is near the peak.
With crude prices range-bound and food inflation softening in the coming months, we think market volatility should subside.
Any material corrections in the near term should be seen as an opportunity to invest in equity markets for long-term wealth creation. The imminent peaking of the rate cycle would give a good opportunity in debt as an asset class too. So, a balanced asset allocation is prudent in this situation.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)