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The markets are in a phase of uncertainty. There could be further corrections, as well. But S Naganath, president and chief investment officer at DSP BlackRock, tells Neha Pandey and Tania Kishore Jaleel that any correction, if caused by external factors, will offer a good opportunity to buy. Edited excerpts:
Do you think it’s a good time for investors to rejig their portfolios? What should be their equity strategy?
One should stay invested and incrementally buy as and when the markets correct and look forward to a favourable investment period in the medium to long term.
In the short term, that is in the next three to four months, the markets could be a little range-bound, with a bit of volatility. It’ll remain choppy, as crude oil prices are likely to remain high in response to geopolitical tensions. One should be watchful of the crisis in Europe. This will be an issue for the next three to four months. Once we get past that, the trend will be reasonably up to stable from August-September.
We tell long-term investors that in the last 15-20 years, the average increase in corporate earnings was 15 to 20 per cent, with the Sensex giving similar returns. Looking ahead, in the next five to 10 years, it looks possible that a realistic assessment will lead you to believe that 15 per cent corporate earnings growth is possible and so will the returns from equity.
With every decline in the markets, and especially if the correction is due to external factors, it’ll be an interesting time to add to equity exposure. As for a completely new investor, buy a little now. As and when the markets correct, build your equity exposure.
In the near term, consumption demand will be subdued. It has been so due to high rates. What has been missing, though, is the capex by companies, which has been slow for two months. As and when rates start coming down, it’ll push private sector companies to invest in capex. This should start happening by the second half of 2013-14 and will add to the growth in gross domestic product. We just have to be watchful in the near term.
Debt and gold took centre stage in the past two years. Which space will be in focus this year?
If you take stand-alone debt, interest rates have been quite good, even if you had put your money in bank deposits. Also, short-term debt funds and other instruments of shorter tenure have benefited from high rates. They might start softening a bit from April or May. After this, the pace of rate-cuts will depend on the inflation trend in the later months of the year. But the pace will be lower than expected.
If oil prices remain high or stay at the level seen in the past four-five months, there are less chances inflation would come down. The base effect will wear off by May. Short-term rates will dip by May and stabilise there. Debt in the short term will continue to generate returns, whereas gold will remain volatile. The view is that with quantitative easing, inflation in the global economy could rise. So, gold will continue to trend high.
After the Union Budget, what are the sectors that look attractive?
The broad view is that if one believes the capex spending cycle will start to build up from the second half of this year, once rates start cooling off, we’ll see a pick-up in capital goods and infrastructure.
Have the markets factored in crude prices and the depreciating rupee?
The depreciating rupee is recent. We’ll have to wait and see if it is a financial year-end phenomenon or going to continue. To take a call on crude oil is difficult. It has gone up 15 to 20 per cent. And, depending on how the geopolitical tensions shape up, the next three-four months will be crucial. If it fades away, crude could come back to $100 a barrel. If things worsen, it could go up to $150.
Are we going to see a correction this year?
If the markets correct, it’ll do so in the next three-four months. The focal points will be crude prices and the euro zone. There is a possibility of global markets correcting 15-20 per cent and the Indian markets could ape this trend. External factors won’t impact the domestic growth trajectory significantly.
How do you think the coming results season will pan out? Are expectations muted?
There are no great expectations this quarter, too. By and large, expectations are moderate.