Mahesh Patil, Co-CIO, Birla Sun Life Mutual Fund
The earlier bull runs were led by one or two sectors. In the 1990s, it was cement; late 1990s, infotech; in 2000 it was infrastructure and real estate. Which are the sectors or themes you are looking at which might work this time? Or is it going to be more of a broad-based kind of a rally?
In the last three years, we have seen the investment cycle collapsing. So I think the thrust of the government, and if you look at the Budget, would be in terms of getting the manufacturing cycle back, the infrastructure sector back on track.
With GDP growth likely to pick up from around 5% to around 7-8% in the next few years, obviously domestic cyclical sectors will lead that. And if you take a proxy to that, I think banking and financials would be one. But I think the manufacturing and the infrastructure story could again really come back strongly.
The big story this time would be whether inflation can remain at reasonable levels for a sustained period of time. The way inflation is headed here and globally–global growth is pretty weak and commodity prices are low, I think the rate sensitive sectors or stocks could lead the rally in this upturn.
What looks more attractive right now from a one-year perspective, equity or debt?
In one year, the market might not give any return or even be negative. But it can also give a 50% or 100% return. The long-term outlook is fairly decent. We are at a phase where things will improve, it is the beginning of a cycle and interest rates will go down. By investing in debt you can play the interest rate cycle, but then there is a reinvestment risk. If interest rates go down, the valuation outlook for equity would also increase longer term, because the cost of equity will go down that will probably justify a higher multiple for the market.
I think clearly the risk/reward looks more favourable for equity for investors.With a longer-term risk/reward in equity, I think a slightly higher allocation towards equity is justified despite the fact that over the one year it could underperform in case interest rates go down. Post-tax, equity should beat hands down in terms of what you would expect from that market.
Prashant Jain
Sunil Singhania
Anoop Bhaskar
