As 2012 draws to a close, most experts and the markets now expect the US to move towards resolution of the fiscal cliff issue in the first half or first quarter of next year. Apoorva Shah, executive vice-president and fund manager, DSP BlackRock Investment Managers, tells Puneet Wadhwa that in the Indian context, he expects more retail participation in the markets next year. Edited excerpts:
Year 2012 has good for the markets, including India. How long into 2013 can we carry this optimism, given the way the global economic and political landscape is shaping?
Can the fund flows top what 2012 could garner?
That may change and we expect more flows to equities in the coming years. Even in India, there has been sustained redemption pressure, which has made retail investors significantly underweight in equities. So, these flows can start coming back if the markets do well.
How are you approaching the fiscal cliff’ issue and the current situation in the Euro zone?
The fiscal cliff issue seems to be a difficult one to resolve, given the polarised views of the Democrats and the Republicans. As days go by, one gets the feeling this may spill over into the next year to be resolved, and it will definitely have an element of volatility associated with such a major issue.
We do hope rationality will prevail and a favourable outcome come through. At least, there will be a move towards resolution in the first half or the first quarter of next year, which will keep the markets in a better frame of mind. But if nothing comes up, then you could have disappointments later, which would make next year a volatile one. The markets have not discounted it yet, because if that was the case, then they would have rallied in a big way.
Going by the MF folio closures seen in the recent past, do you think retail investors are still sceptical of how the markets may pan out? Do you expect active retail participation in 2013 or will it be another year of fence sitters?
The retail investors’ response has been pretty negative towards the markets and we are continuously seeing investors taking money out from mutual funds. Asset classes like fixed income, gold and property have seen good inflows from them and they have also delivered good returns. When equities start giving handsome returns, investors are bound to come back. Hence, we would be seeing retail investors coming back to the market in 2013.
How do you read the recent move by the Reserve Bank of India (RBI)?
The RBI has maintained their position that the government needs to moderate the fiscal deficit so as to contain inflationary expectations. Now that the government has started taking action by reducing some subsidies and has promised more reforms, the RBI should likely follow with interest rate cuts.
Growth has been affected by low investment demand and that will possibly take some time to revive. We believe investment demand will improve in the medium term.
What is your view on the telecom, banking, pharmaceutical and fertiliser spaces, in the light of recent policy measures and the valuations these stocks are available at?
All spaces are attractive and in each space one has to pick the right stocks. There will be winners and losers in each space. Banking is an attractive sector and should do well as the economy bottoms out and the government starts taking policy measures. Both these factors should help reduce the concerns on non-performing assets.
The pharma sector is attractive due to its export orientation but the domestic business could be muted due to issues on pricing power. The telecom sector has been very capital-intensive due to large license fees. Government policies have a large bearing on the fertiliser sector, which needs to open up for the sector to do well.
Most non-banking finance companies (NBFCs) have run up on hopes of fresh banking licences. Do the valuations now look stretched? How should one play this space for the next one – two years?
NBFCs have run up not only because of expectation of fresh banking licenses but also because of the continued steady growth and margin improvement due to fall in wholesale rates. Some of the NBFCs have very strong business models with entrenched distribution, which will enable them to post steady growth. As the economy picks up, they should continue to do well.
How about cement, FMCG, media & entertainment and the aviation pack that has been attracting investor interest?
The media and entertainment sector seems to be very well placed, the former due to pricing discipline and the latter due to digitisation and better pricing power for the broadcasters. The aviation sector is a tough one to call because it’s a highly capital intensive sector. The FMCG sector is always attractive if one chooses the right time and valuation.