{"id":110345,"date":"2021-01-27T06:22:25","date_gmt":"2021-01-27T06:22:25","guid":{"rendered":"https:\/\/precoinnews.com\/?p=110345"},"modified":"2021-01-27T06:22:25","modified_gmt":"2021-01-27T06:22:25","slug":"equity-market-is-in-the-midst-of-a-bull-market","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/equity-market-is-in-the-midst-of-a-bull-market\/","title":{"rendered":"‘Equity market is in the midst of a bull market’"},"content":{"rendered":"
‘If an investor is ready to stay put for the next five years, one can consider investing in mid- and small-cap funds, but through SIPs.’<\/strong><\/p>\n Global central banks are driving stock markets worldwide, including India, and there is reason to be positive on equities until such time as inflation returns in the developed world, says S Naren<\/strong>, executive director and chief investment officer, ICICI Prudential AMC.<\/p>\n In an interview with Ashley Coutinho<\/strong>, Naren, bottom<\/em>, says current valuations are not very expensive, especially when viewed in the context of low interest rates.<\/p>\n What is your outlook for Indian equities this year?<\/strong><\/p>\n We are of the view that the Indian equity market is in the midst of a bull market, driven by central banks of the developed world.<\/p>\n We are positive on equities, in general till inflation makes a comeback in the Western world.<\/p>\n When that happens, central banks, especially the US Fed, is likely to withdraw liquidity support, which has been the cause of the current rally.<\/p>\n We don’t see this happening anytime soon, at least not in the next six months.<\/p>\n For those averse to market volatility, the optimal approach is to invest through dynamically managed asset allocation schemes.<\/p>\n What are your thoughts on market valuation?<\/strong><\/p>\n On a standalone basis, equity valuation is expensive.<\/p>\n However, when viewed in the context of interest rates, which are very low, market valuation is not very expensive.<\/p>\n It is because of this reason that the key to how the rally unfolds in the times ahead lies with central banks of the developed world.<\/p>\n In this market, are there any pockets of value?<\/strong><\/p>\n Even after the market rally, there are pockets of value for a discerning investor. Sectors such as metals, corporate banks, infrastructure, and real estate continue to offer value.<\/p>\n Some of these sectors have been underperformers since 2008.<\/p>\n In effect, the sectors that did well from 2002 to 2007 are the ones that look much more attractive today than those that did good between 2008 and 2020.<\/p>\n What is your view on banks and non-banking financial companies (NBFCs)?<\/strong><\/p>\n We are positive on corporate banks and NBFCs, especially those that are focused on loans for commercial vehicles and homes.<\/p>\n We believe these will be out of the woods first, followed by others that are facing issues related to non-performing loans.<\/p>\n Your thoughts on the mid- and small-cap space. Do you think the rally will become broader now?<\/strong><\/p>\n The market rally this year is likely to be much more broad-based.<\/p>\n The outlook on the sectors that have not participated thus far too has improved and hence their participation in the market is likely to improve.<\/p>\n Market polarisation, which has been the case till October last year, has reduced and we believe the process will continue.<\/p>\n When interest rates are low, small- and mid-cap companies stand to benefit.<\/p>\n In the quarters ahead, it is probable that the profitability of fundamentally strong companies in the broader markets will improve.<\/p>\n This is likely to set the stage for a rally in the mid- and small-cap space.<\/p>\n So, if an investor is ready to stay put for the next five years, one can consider investing in mid- and small-cap funds, but through systematic investment plans (SIPs<\/em>).<\/p>\n The start of 2020 saw investors flee debt funds because their confidence ebbed due to certain events. What approach do you recommend for 2021?<\/strong><\/p>\n Investors in debt mutual funds of ICICI Prudential were not affected by any of the adverse incidents.<\/p>\n We are comforted by the returns our funds have delivered.<\/p>\n Further, for 22 years of ICICI Prudential MF’s existence, we haven’t faced any default in our debt holdings.<\/p>\n In CY2020, the Reserve Bank of India cut rates by 115 basis points.<\/p>\n This was coupled with various measures to support growth and also ease the liquidity situation.<\/p>\n We assign low probability for rate cuts due to change in growth and inflation dynamics.<\/p>\n AA corporate bond yields spread over the repo continue to remain high, offering a high margin of safety. Due to the flight to safety, the transmission of rates happened more in the extreme short end and in the AAA space.<\/p>\n However, in the AA space, rate transmission remains muted, providing an opportunity to invest.<\/p>\n We had been recommending debt for a long time. A combination of arbitrage funds, accrual funds, and dynamic asset allocation funds may prove to be a better way of investing in debt.<\/p>\n What is your take on domestic institutional investor flows? Do you see that improving?<\/strong><\/p>\n Investors spooked by the sharp market correction in March have turned cautious and booked profits, due to which we have seen outflows from equity mutual funds.<\/p>\n This trend is likely to reverse soon.<\/p>\n The interesting point to note here is that while the inflows through SIPs may have reduced, the number of new SIP accounts has seen a healthy addition.<\/p>\n The number of SIP accounts has increased from 33.7 million in October to 34 million in November last year.<\/p>\n What is your take on the underperformance of large-cap funds vis-a-vis their benchmarks over the past few years?<\/strong><\/p>\n In an extremely polarised market, which was the case with Indian equities for the past 24 months, outperforming the benchmark was a challenge.<\/p>\n However, now, as the market rally becomes more broad-based, this trend will likely change.<\/p>\n Any thoughts on passive investing?<\/strong><\/p>\n In a market such as India, there is room for growth for both active and passive strategies.<\/p>\n However, for active to perform well, we require a less polarised market than what has been the case over the past couple of years.<\/p>\n