"The need of the hour is to revive consumption-led demand through fiscal incentives and inducing disposable income to people from the unorganised sector," Rajesh Cheruvu, chief investment officer, WGC Wealth, tells Ashley Coutinho.
What is your outlook for the market for the year ahead?
Since the general elections are behind us, the focus will shift to macro fundamentals and corporate earnings.
Given the slowdown in demand in consumption and investment, we think earnings will continue to be reflective of the same for the next few quarters.
In this backdrop, markets are likely to be range-bound with a downward bias for the remaining part of the year.
Do Indian markets look overvalued at this stage?
Broader markets are trading at multiples above the average from a 3 to 10 year perspective.
However, mid-caps are trading at a discount to their historical averages and relative valuations to large-caps, given the selloff since early 2018.
Further, the earnings outlook, too, appears attractive for mid-caps over large-caps and we are overweight on the former.
With the BJP returning to power with full majority, market sentiment has turned positive. Yet GDP growth is decelerating, and the fiscal condition remains tight. What is your reading of the situation?
Decisive electoral mandate led to optimism in market sentiment, which led to the recent run-up in indices towards new highs.
Growth has entered the slow lane for the past three quarters, led by weakening rural incomes, sustained deflation in agro commodities and sharp slowdown in government spending on infrastructure.
Furthermore, court rulings on third party insurance, overloading of trucks, NBFC crisis and lack of new model launches crippled demand in the auto segment.
Now that a stable government is in place, we expect a series of measures to revive demand by providing income supplements to rural poor, easing tax burden on consumer segments (by GST rationalisation) coupled with liquidity infusion to NBFCs.
What are the global cues to watch out for?
We always believed that the US-China trade tussle is likely to take longer to resolve given the complexities involved.
We think Indian exports are likely to gain from the ongoing rift by growing as an alternative source of imports for US customers.
Already, we are seeing some traction in the speciality chemicals segment in this regard.
We believe oil price risks are overstated and expect them to be range-bound, considering the global growth outlook, gradually rising US oil supplies, ongoing supply constraints by OPEC plus members and geopolitical factors.
Emerging markets took a beating last year with investors shifting their attention away from risky assets. What is your outlook for these markets now?
In 2018, EM assets suffered with rising global cost of capital and gradual liquidity absorption by the US Fed.
Now, the developed market central banks appear to be changing stance to keep liquidity stable with easing bias.
This could stabilise the risk appetite for the remaining part of the year.
Global investors may look to see the fiscal reforms to revive growth in India, before taking further view on the market.
India, however, continues to stand out as an attractive destination, given the structural drivers like favourable demographics and ongoing thrust for infrastructure build up.
Do you see a sustained recovery in corporate earnings in the coming quarters?
The ongoing earnings season points to a broad-based slowdown in demand.
So, the need of the hour is to revive consumption-led demand through fiscal incentives and inducing disposable income to people from the unorganised sector.
The elections slowed the ongoing infra spend, which needs a revival through accelerated approvals by both the Centre and states.
Which sectors are you bearish and bullish on?
We believe export-oriented sectors should be avoided given the sharp slowdown in global trade volumes and stronger domestic currency.
Domestic-oriented businesses should be favoured -- sectors like construction, materials and home improvement segments are likely to benefit from the infrastructure and housing impetus.
Consumption and select financials can also be looked at owing to the recent sell-off.