Sampath Reddy, chief investment officer of Bajaj Allianz Life Insurance expects corporate earnings growth to pick up going forward, and Nifty to deliver 12-15 percent returns in the medium term.

Share Market Live

NSE

Speaking on the Union Budget 2019, Sampath believes that if the rural sector receives good amount of government support and capital allocation then the economy will kickstart consumption again.

Here are edited excerpts of a telephonic interview with Reddy:

What is your market outlook given the global cues and volatility in the global crude prices?

In the past few years market returns were driven more by P/E expansion and less by corporate earnings growth which has been muted and driven by a few stocks/sectors. Going forward, we expect corporate India earnings growth to pick up and it should be broad based. As that happens, we believe 12-15 percent returns are possible over the medium term even if P/E reduces slightly from the elevated levels.

Are you expecting Nifty50 to go beyond 12,000 in the near-term?

It's difficult to predict short term market levels. However, as we expect earnings recovery to happen, investors can look forward to 12-15 percent growth from the current Nifty levels, even if there is a slight P/E compression. India growth story continues to be strong and it is one of the large economies which is still growing at good pace.

There has been slower recovery in the consumption space. What do you have to say about that?

Over the last few years consumption has been driving earnings growth in teh absence of private capex . While it has slowed down due to multiple factors like lack of availability of funding post the NBFC

Considering the current market situation, which sectors should one invest in and avoid?

We are currently positive on private financials on account of steady earnings and strong asset quality. We also like the capital goods and cement as we expect a recovery in private capex/infrastructure spending in the next few years. Selective pharma stocks are available at attractive valuations.

The sectors which are facing challenges in the near term are automobiles — which is facing a demand slowdown — and telecom which is facing intense competitive pressure. And global commodities like aluminium and steel are also suffering from the trade war-led uncertainty.

Most investors believe that the NBFCs, HFCs and banking stocks are available at cheap valuations especially after the meltdown of these cumulative sectors. Would you suggest buying these stocks now or wait until the situation improves?

We continue to prefer large well run private banks and a few NBFCs that have demonstrated good asset quality. Even though share prices for many NBFCs/HFCs which have poor asset quality have come down, we would still prefer to stick with the companies that have good asset quality and balance sheet strength. Value stocks can be picked up from other sectors which are facing headwinds than the weaker financial companies which are distressed.

Coming to Union Budget 2019, what are the key reforms that you are expecting this time?

The market hopes that the Budget would address rural distress affecting the economy. The government should undertake steps to enhance the rural income and increase minimum support prices

Second, in order to create capacity in the economy, government spending on the infrastructure is essential. Sufficient capital allocation was kept for the road and rail development in the past by the government, and I hope this trend will continue this year as well. The market would also be monitoring any change to the corporate tax rate which could also benefit the corporate sector. Any additional budgetary resources like reserves from the RBI

Will market rally and consolidate the same way post Union Budget as it did during general elections?

General election was a big event for the market as market was hoping for a strong and stable government, and hence it had reacted positively. Even though events like Budgets, credit policies are important events to watch for, most of the issues from the Budget are taken away and incorporated in the GST

Markets would take cues from fundamental factors like earnings growth, in the long term.

On the portfolio management side, how should one allocate their capital in equities, mutual funds and bonds?

One should make investments based on one’s own expected returns and ability to take risks. Having said that, I think large part of the bond rally is behind us as we have already seen substantial softening in bond yields over the last few months. In this context, investors with a long term investment horizon and risk appetite may look to increase allocation to equity.

Disclaimer:

CNBCTV18.com advises users to check with certified experts before taking any investment decisions.