Market expects return of Modi govt in 2019
Interview: Alok Singh, Chief In­v­e­s­tment Officer, BOI AXA Inv­estment Managers

It’s not the government, but the global macro environment that matters. The government is just a facilitator. The infrastructure projects, announced by the government, will be executed over the period of time in coming ye­ars, said Alok Singh, chief in­v­e­s­tment officer, BOI AXA Inv­estment Managers, in an interview with Ravi Ranjan Prasad. If global economy continues to remain stable than there no reason to be worried as an investor, Singh remarked. Excerpts:

The market has recovered after a 10 per cent decline. Do you see the current recovery sustaining with global and domestic factors at play?

There is no market where prices remain constant be it bourses or any other wholesale market. Price volatility is a function of supply and demand and it will always be there. Only thing is that the reason for volatility changes. Some time it’s external like geo-political issues, other times internal issues like fiscal deficit and inflation. But the market changes direction depe­nding on fundamental changes happening, be it change in macro economy or global economy.

Main reason for the recent market recovery was that factors affecting the global economy started getting resolved. There was lot of debate in last two months about trade war affecting businesses; we have seen this getting moderated. This has happened earlier also – between the US and Japan. Obviously, China is not Japan and it may take some more time. We think global growth will not get impacted and markets will do well, India may do slightly well. Going forward monsoon is a new factor; the Karnataka election is another factor that may influence the market in the near term.

The earnings season has begun. Do you see IT companies enthusing the market after Infosys number failed to cheer?

In the December earnings season, there was some pickup in growth. At broad base the Nifty-50 level for December growth was around 13.8 per cent, but if two banks and two pharma firms were set aside growth was around 25 per cent. For Q4 also we ex­p­ect earnings disparity to continue among sectors. We expect industrials, materials, metals & mining and consumer discretionary sectors to lead the earnings growth.

FY19 is also an election year. Do you see the market momentum getting disrupted due to state polls this year and general elections next year?

This is not the first time. This is a part of life. Some elections are considered important and some not. I don’t expect excessive vola­t­i­lity; the market has become more broadbased. Earlier it used to be dominated by FPIs, now domestic funds have also bec­ome big; the texture of the market has changed. Currently, the market is factoring that the present regime will return to power.

In 2004-09, the UPA government ran the country. It was a period of hyper growth. It’s not the government, but the global macro environment that matters. The government is just a facilitator. The infrastructure projects, announced by the government, will be executed over the period of time in coming years. If global economy continues to remain stable than there no reason to be worried as an investor.

Foreign fund flows are becoming secondary to domestic mutual fund inflows. But March witnessed a sharp dip in mutual fund inflows. Will MFs be able to anchor the market this year?

Yes. Increasingly, the influence of FPIs on the equity market has been decreasing. Indian retail investors have just started allocating to equities. There allocation to real estate and gold is still higher. People after investing in MF products are realising that it’s a simple product; it’s not expensive and can be liquidated easily. The mutual fund NAV is much more transparent/certain in value and one can actually transact on it. This is attracting more people and I think it will continue.

How significant is monsoon for the equity market? Will rains impact the market?

Monsoon is an important event. The initial indications are that we are going to have normal monsoon. The government has been able to control food inflation effectively. In case there is a price disruption due to abnormal monsoon even than overall inflation should remain in order. Yes, there can be some disruption at the rural economy but we have to wait and see.

Which segments of the economy will be rewarding investors this financial year?

Sector-wise most growth has come in two types of industries – the government-driven and the consumption-driven. When economy comes out of recession or poor phase, the government has to take lead. It leads to consumption of resources and capacity utilisation. The private sector capex always come at later stage. The government has tried to push infrastructure building leading to steel, cement, capital goods capacity getting utilised. Economy is getting revived. Business are getting order visibility. Consumption is picking up with earnings level increasing, especially discretionary consumption. People are not only purchasing more, but also buying value-added products, which leads to higher sales in consumption stocks.

What’s your take on GST im­plementation so far? When can we see full impact of GST rollout, as the new tax regime will be completing one year by June?

It’s easy to criticise something. With economy of this size, operating in a federal structure and each region having its unique practices/process, implementing something like this, itself is a great achievement. There are clear benefits in terms of prices. The government is trying to simplify the process. GST collections will slowly inch up from the present Rs 85,000 crore to Rs 90,000 crore per month to Rs 1 lakh crore. It will instill confidence in the government to also bring petroleum products in the GST ambit.

The primary market created new records in FY18. How do you see it faring in FY19?

The primary market has been quite vibrant for last one year. You will see more activity here, as the country need capital, either financed by banks or by capital markets. Also, the government has realised that disinvestments through listing and selling is a better method. There are many large companies in the government’s basket. Larger ticket public offerings will be from the government side and smaller from private companies.

Ravi Ranjan Prasad