'With valuations well below long term average and likely improvement in corporate earnings, we think Indian equities offer an attractive investment opportunity today, for investors with a 12-24 month investment horizon,' says Vinit Sambre, Fund Manager, DSP BlackRock Investment Managers.
In an exclusive interview with Varsha Inamdar ofMyiris.com, Vinit Sambre further said, ''We have increased exposure to interest rates sensitives with a view that the Reserve Bank of India will start the rate cutting cycle in the upcoming monetary policy review on January 29.''
Excerpt from interview Myiris had with Vinit Sambre:1. How do you see outlook going ahead in 2013? What are the key triggers/ risks that will drive market performance?
Indian equities (BSE Sensex) have shown remarkable performance in 2012 ytd, having risen around 28% in rupee terms and 24.01% in USD terms. This compares with 18.44% (in USD terms) for MSCI Asia ex-Japan and 17.49% (in USD terms) for MSCI Emerging Markets. Portfolio flows have been robust with net Foreign Institutional Investors flows for the year at nearly USD 22 billion..Looking ahead at FY 2014, we expect economic growth to accelerate to 6.5% (from 5.5% currently expected for FY13). Continued strength in domestic consumption demand, further bolstered by the direct transfer of subsidies, together with a revival of the investment spending cycle led by public sector enterprises, will likely contribute to this increase in economic growth. The Government is very focused on speedy approvals (having recently set up a Cabinet Committee of Investments (CCI)) of various projects that are awaiting clearances so that investment spending gathers momentum and adds to the pace of growth in the economy. We anticipate private sector investment spending to gather momentum in FY 2015 and FY 2016. This, we believe, could accelerate growth to 7% - 8% in the medium term.
On the risk aspect, the ongoing economic crisis in the Eurozone as also rising oil prices (India imports nearly 80% of its crude oil requirements) are external headwinds while domestically, politics and implementation of the recent policy announcements remain the key risks.
2. How do you see corporate earnings third quarter? Do you think Q3 earnings would give fillip to earnings upgrades?
The third quarter corporate earnings are expected to grow by high single digits and are likely to be better than the second quarter. We expect the private sector banks, pharmaceuticals and consumer non-discretionary sectors to perform well during the quarter. The downgrade cycle seems to be behind us now. We believe that fall in interest rates will be the key trigger for pick up in investment activity and eventually the earnings. The interest rate cycle is expected to reverse soon but earning upgrades will be a gradual process thereafter.
3. Could you tell us your sector bets for 2013?
Financials, Industrials, Consumer Discretionary and Media. We have increased exposure to interest rates sensitives with a view that the Reserve Bank of India will start the rate cutting cycle in the upcoming monetary policy review on January 29.
4. How do you see November IIP figures?
Given the volatility in the IIP figure in the past few months it would difficult to establish any major trend right now. However we believe that the outlook will start improving once the investment activity picks up.
5. Your advice to investors in the current market scenario.
The BSE Sensex is now trading at 13.8 X FY 14 earnings, well below the long term (15 year) average P/E multiple of around 14.8x and with corporate earnings likely to improve after two years of lackluster growth, we think Indian equities offer an attractive investment opportunity today, for investors with a 12-24 month investment horizon.