‘Sectors that had been left out till now will also start participating in the rally.’
“A large part of Covid uncertainty is behind us, and investors are becoming more confident with their expectations,” Sampath Reddy, chief investment officer, Bajaj Allianz Life Insurance, tells Puneet Wadhwa.
What is your outlook for the markets for the remaining part of 2021?
We are cautiously optimistic on markets for 2021, on surplus global liquidity and benign interest rates.
The US Federal Reserve, prior to the pandemic, had an outstanding balance sheet size of $4.2 trillion as of December 2019, which doubled in size to $8.3 trillion.
Likewise, the European Central Bank, which had a pre pandemic balance sheet size of 4.7 trillion euros also saw a similar proportional increase in size to 8.2 trillion euros.
This liquidity is providing support to asset inflation in high risk asset classes, including emerging equities like India.
We expect natural profit taking to happen with rising markets, but do not see any meaningful correction, unless there is a more aggressive taper stance by the US Fed.
Will the markets become more polarised in the next few months?
We are seeing the market rally becoming more broad-based, with large-caps also gaining traction, which had been missing in action for some time.
Nifty underperformance over Nifty Midcap Index over the last one year is around 25 per cent, while for the last 3 months is (around 2 per cent), thereby indicating large-cap participation in the recent rally.
We expect this trend to continue, with sectors that had been left out till now, also participating in the rally.
This will happen primarily because a large part of Covid uncertainty is behind us, and investors are becoming more confident with their expectations.
Which sectors in your opinion are likely to lead the rally from here on?
The banking sector has underperformed over the recent period, with 6 month return of around 2 per cent vs around 17 per cent for Nifty500 Index mainly due to higher than expected NPAs in the first quarter; we expect this sector to start contributing to market rallies ahead as we believe the NPA stress will come down.
Are you planning to pare exposure in any sectors in your portfolio?
We continue to remain fully invested with limited cash levels of around 5 per cent to take opportunistic investments.
Remain watchful of broader market signals such as earnings growth momentum, valuations and liquidity parameters, and intend to be nimble in our approach to portfolio management.
As the economy is reviving from the long period of lockdown, the market rally would remain broad-based going ahead.
However, we continue to like and stay overweight in some of the sectors like information technology and metals.
There can be structural shift in demand for IT services driven by large spending by corporates.
Metals sector is likely to go through an opportunistic upcycle on China’s pollution control induced production curbs.
Global liquidity also seems to be adding to this high risk asset inflation.
What is your stance on auto stocks?
Based on our interactions with various experts, we expect this situation to continue for six-nine months, post which better clarity is expected to emerge.
Automobiles, especially the two-wheeler makers would also be facing competitive challenges from the electric vehicles.
Due to this, we have been cautious on this sector, and prefer ancillaries over original equipment manufacturers.
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