Category: Interviews

Interviews :: Home loans slowdown driven by RERA will reverse in 8 months: ICICI Bank honcho Ravi Narayanan

Interview: Ravi Narayanan, senior general manager and head – retail secured assets, ICICI Bank.
By: Shritama Bose | Updated: November 28, 2017 12:20 PM | Financial Express

The home-loan market seems to have slowed down, first because of some postponement of demand with demonetisation, and then with the implementation of RERA. Where do you see things going from here?
The supply in the system had anyway started reducing in the last two years. Between September 2016 and September 2017, supply has dropped by over 10-12% in residential real estate in the top 40-45 cities. Till a year back, the inventory overhang used to be about 18-20 quarters in the industry. Along with supply, absorption of units was also coming down because of various reasons, one of which could be demonetisation. People expected a price correction. With RERA coming in, my estimate is that the supplies will go down still further because the act has put in various guardrails as to how the builder must manage the finances available for the project. This augurs well because inventory overhang should not be so much. The second outcome of RERA will be a rise in customer confidence. So once this whole dust settles, we will see pick-ups rising. So there will be a decrease in inventory and an increase in sales and that should be good for the industry.

Won’t that also cause asset prices to rise?
It will follow a pattern. There is an oversupply right now. If the demand-and-supply gap comes down drastically, then the prices will go up. In the next six to eight months, a lot of consolidation might happen in projects underway, which may not be amenable for prices to go up. Prices will remain, more or less, at the same level or there may be some fall in prices. Also, in the last six-seven years, real estate has seen a slight downturn. Typically, the industry follows an eight-to nine-year cycle. So in my opinion, 2018 will again see a rise in sales.

A development that followed demonetisation was the expansion of the credit-linked subsidy scheme (CLSS) for housing. Are you seeing supply and offtake picking up in that category?
Over 60% of new home launches in the industry in the first half of FY18 had ticket sizes under Rs 25 lakh. Because of this scheme under the Pradhan Mantri Awas Yojana, a lot of projects have started coming up in this category. Builders are also entitled to certain benefits if a part of their projects are of sizes below a certain threshold.

So is the phenomenon of builders allocating more space to smaller units a countrywide one?
This is happening primarily in Mumbai and Pune. Some of it is happening in Chennai and Bangalore. But, it is not happening across the country as yet. That’s partly because you have to keep operating costs and land cost under control to be in affordable housing. It is a very price-sensitive market. However, given the focus on this sector from this government, there’s bound to be more players flocking to it.

In mortgages, banks have continuously been losing market share to housing finance companies (HFCs). Have they actually weaned away bank customers for their growth?
No, because the mortgage industry is really big. The mortgage book of the country is now at Rs 15 lakh crore; over the next few years, at a CAGR (compound annual growth rate) of 20%, it should go up to Rs 50 lakh crore. When the pie is so large, everyone will have a share. It’s just a question of how each player orients themselves. Today, most banks are focused on the metros, while HFCs are operating in the peripheries (of cities). So we are not meeting each other much. But very soon, it will all become one playground. Banks venturing into the peripheries will be much faster because we anyway have branches.

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Interview :: Invest cautiously, stocks over-valued: Nimesh Shah

Sidhartha | TNN | May 5, 2017, 06.22 AM IST | Times of India

ICICI Prudential Asset Management Company managing director & CEO Nimesh Shah believes in speaking his mind. While most market players are euphoric about the recent rise in stock market indices, Shah cautions investors against chasing high returns, given that the valuations are high. But he is optimistic about the medium term prospects and insists that mutual funds will be the preferred mode of investment, given the “repair work” in real estate. Excerpts:

What should someone looking to enter the stock market either with cash or via SIP do at this time?
On a price-to-earnings basis, market is over-valued at current levels. Because of the persistent flows from both foreign and domestic portfolio investors, the market is currently running a year ahead given that earnings per share (EPS) is expected to improve significantly by 2018-19. This is because we believe that over the next twothree years, capacity utilisation can increase and so can the return on equity . Currently , the macros are strong but Indian companies are facing various pockets of challenges. But consumption across the spectrum is likely to hold strong. Given this expected improvement, it is likely that there could be a consistent flow of investment from institutional investors, thereby lending a reasonable investment experience over next twothree years. But since the market is already slightly over-priced, one cannot expect abnormal returns.

For those investing via SIP , they can continue with their investments because over the next three years, the investment price will average out, thereby yielding better returns. For someone who is coming in when sensex is at 30,000 level, can consider dynamic asset allocation funds which result in lower equity exposure when the equity level is up and vice versa.

But it gives you conservative returns…
Yes, it does. But it is good to opt for conservative returns when sensex is at 30,000 level.Even if the index were to head higher say 33,000 level, the only limitation here would be that the entire upside is not captured. But when market turns volatile at higher levels, this class of funds can limit downside. As we all acknowledge, there is more pain in losing Rs 5 than the joy in gaining Rs 30.

If you are investing in equity MFs, one should consider large-caps because mid-caps are over-valued at present. Continue investing but invest with caution because returns may not be too high from current levels. Just because banking funds as a category has delivered 40% plus returns, it does not mean everyone should invest in it based on past one-year return.

A few years ago, the government was worried about the huge inflows from FIIs and feared the impact post withdrawal. But now mutual funds seem to have emerged as an effective counter-balance. Has the domestic MF industry matured?
To a certain extent domestic institutions have emerged as a strong counterbalance. Over the last few months, mutual funds and foreigners have pumped in money into stock markets, thereby pushing up benchmark indices. However, even if foreign investors were to withdraw tomorrow, Indian MF and insurance industry which is putting in over $3 billion a month, will be able to balance it out, thereby limiting any adverse shocks. Today , people refrain from investing in real estate, gold and bank FDs, which is currently yielding 6-7% return pre-tax. In such an environment, equities are becoming a TINA factor -there is no alternative. So, we believe that steady inflows may continue.

How much of small investor money is coming into the market?
Mutual fund in India is all about small investors; high net worth individuals form a very miniscule portion. We are opening nearly 120 offices across smaller towns such as Nadiad (Gujarat) and Arrah (Bihar) because we believe that MF is a viable business. We have ensured that we are present pan-India, including North East. If we can give a better alternative to unorganised investment avenues, people can invest. While people in Gujarat who are more evolved investors can move to value investing, in the East, money can be moved into mutual funds from unorganized sector, there by giving us an opportunity to show the importance of well-regulated businesses.

Will the recent change in regulations push MFs?
We are in an infinite market as the MF penetration is hardly 4% in the country . The one major challenge now is simplified onboarding process for investors. Today, 85% of our business comes from existing consumers and this shows that the market is not expanding adequately . As a fund house, we receive several queries on our website, but the conversion rate is disheartening. We have come to realize that investors are wary of the entire KYC process. Like insurance, AMCs too should be allowed to use the bank KYC details, thereby eliminating the duplication of paperwork.

The reason why bank KYC should suffice is because entire industry does not deal in cash transactions. MFs receive funds via bank accounts and at the time of redemption the funds are transferred to the same bank account. So there is absolute transparency .

Source : https://goo.gl/y2MtpW

Interview :: ‘Patience is central to success in investing’

MEERA SIVA | September 18, 2016 | The Hindu Business Line
Once invested, don’t look at the portfolio frequently

Property investments in India do not give enough inflation-adjusted return, but Indian equity and bond markets present a lot of opportunities for investors, feels Saurabh Mukherjea, CEO of Institutional Equities, Ambit Capital. Excerpts from an interview with Business Line:

How do you filter companies before you make an investment decision?

I look for good stocks with high return on capital employed and consistent revenue growth. The industry the company operates in should be attractive, that is, it should be growing at over 15 per cent annually and the top players should have sizeable market share so that profits are not eroded in competition.

Some examples are men’s shaving products, trucks and speciality chemicals. Secondly, the management has to be competent and focused on the core business.

Once invested, it is also important not to look at the portfolio too frequently. Patience is central to success in investing and money cannot be made by being hyperactive.

What red flags do you watch out for?

One must be watchful of corrupt and lazy promoters whose core competence is only making great presentations.

Even good brands in booming industries flounder due to promoter issues. Besides, in India, one in two companies has some sort of accounting issue. So we have a detailed checklist to weed out accounting problems.

Only 100-120 companies in the Indian listed universe meet these checks. I think it is best to avoid companies with governance and book keeping issues as value will be destroyed sooner or later.

What returns do you look for in your investments?

While the quoted inflation rate is a lower number, what I look at is the rate of inflation for my basket of consumption.

This is around 12 per cent. So any investment that I make must meet this cut-off for return. I invest only in products that I understand and avoid exotic asset classes and overseas markets.

What are your current investments?

Due to the nature of my job, I cannot own stocks directly. So my equity investments are through mutual funds. I also have debt investments in Government and corporate bonds.

I feel there may be some tough times ahead globally due to the negative interest rate scenario. Due to these potential uncertainties, I have invested in gold through an ETF.

What are your views on real estate as an asset class?

I own the flat we live in, but beyond that I feel property investments in India do not give enough return. I feel real estate is a silent killer in high networth portfolios insofar as such returns do not keep up with inflation experienced. A 12 per cent return, post tax, is my threshold. Rental yields are very low, at 2 per cent. So buying and renting out a residential property makes little sense.

Also, in cities such as Mumbai and New Delhi, prices went up due to huge amounts of black money. With a crackdown on that, returns will be muted.

Would you recommend direct equity investments?

There are many risks in equity investments and it is best left to experts.

So mutual funds should ideally be a good way for the average middle-class investor to get equity exposure.

However, the reality is that there are many schemes and a plethora of choices that are confusing. Investors rarely get to meet fund managers and there are no reliable filters from which one can pick fund managers.

On the other hand, you can build a portfolio of good stocks by using simple filters.

For example, companies that have seen consistent revenue growth of 15 per cent every year and 15 per cent return on capital employed.

It is possible to build a good equity portfolio with 15-20 stocks and hold it over a long-term.

Our analysis shows that the annual return of such sensibly constructed portfolios can average 25 per cent over a decade.

Buying the stocks when there is pessimism in the market is a good strategy.

One can also do systematic investments in stocks.

Source: https://goo.gl/CJD3fL

Interview :: Not every stock can perform like Sachin, try SIPs to form a balanced team

By Kshitij Anand | ECONOMICTIMES.COM | Aug 27, 2016, 03.22 PM IST

NEW DELHI: The potential for wealth creation is immense only if you follow a disciplined approach to investing instead of hunting for the one stock that can outperform every other asset class.

Investing is more like cricket, explain experts. You need players with diverse skills such as batting, bowling, fielding, wicket keeping to make a successful team. It will be foolish if you rely on just one player such as a Sachin Tendulkar to help you win matches.

In investing too, diversification is key and mutual funds create that opportunity for you. Keep investing in mutual fund via systematic investment plans (SIPs) to harness fruits of wealth creation for the future.

“Everyone cannot be a Sachin Tendulkar. To become the number one Test team, you do not require all the Sachin Tendulkars in the team. Even if you have 10 other average players and one Sachin Tendulkar, that is more than sufficient to make you wealthy,” Nilesh Shah, MD, , Kotak AMC, said in an interview with ETNow on the occasion of SIP Day.

“It is the discipline that creates wealth rather than hitting every ball for a four or a six. Whether you are keeping your money in fixed income, bank deposits, gold or cash – these are all various ways of savings, but for an ordinary investor the way to invest is through systematic investment plan (SIPs) of equity mutual funds, especially those who are not aware of the intricacies and nitty-gritty of the equity market,” he said.

If you want to create wealth without compromising on your monthly liquidity, then investing via systematic investment plans (SIPs) is your best bet. The nextgeneration retail investors understand the potential of the equity market, and that is one prime reason why we have seen a surge in average SIP investment.

Mutual funds added 12.61 lakh investor accounts, or folios, in June quarter to take the tally to a record six-year high of Rs 4.89 crore. Retail investors accounted for 95 per cent of total mutual fund (MF) folios, Amfi said in a report.

Retail folios comprising 95 per cent of total mutual fund folios expanded for the seventh straight quarter, CrisilBSE 0.14 % Research pointed in a note last month. Around 76 per cent of the total retail portfolios put money in equity-oriented funds for the seventh consecutive quarter amid an uptrend in the stock market.

Most of the mutual fund (MF) houses are mulling launch of more variants of systemic investment plans (SIPs) to attract investors. The variants include SIP topups and smart SIPs.

“No doubt, investors have started to invest in the market systematically. Approximately Rs 3,000 crore is being invested every month up from Rs 1,000 crore two years ago,” Jimeet Modi, CEO, Samco Securities, told ETMarkets.com.

“A major contribution is coming from the working class population and HNIs, as financial literacy is rapidly crossing new frontiers in India,” he said.

Modi said there were 2 million folios two years ago and now it has ballooned to 3.7 million, indicating that more and more people are investing their savings in equities through the mutual fund route.

One prime reason for the enthusiasm displayed by the fund managers is the potential of Indian economy, which can produce wealth-creating opportunities in companies.

At a time when most of the developed markets are struggling to grow, the Indian market has the potential of clocking a growth rate of above 7 per cent. The market has already bounced back 20 per cent from its 52-week low, which is a sign of strength.

“As a thumb rule, if we have tripled our economy in last 10 years, can we not double it over the next 10 years? It is not guaranteed, but possible. Now, if in next 10 years we are going to double our economy, then that economy will create companies which will create wealth for investors,” said Shah.

“If investors give money in the hands of professional fund managers, who have track records of outperforming the benchmark indices by a reasonable margin, it is fair to assume that they will continue to outperform the indices and those funds will end up creating wealth for investors,” he said.

Source: http://goo.gl/2ojvwQ

Interview :: All you need is Rs 20,000 a month for 15 yrs to be a crorepati: Nimesh Shah

By Kshitij Anand, ECONOMICTIMES.COM | Aug 10, 2016, 01.51 PM IST

The unique challenges to growth of developed markets make emerging markets, especially India, look attractive. However, a strong upside from current level looks challenging at this point in time, says Nimesh Shah, MD & CEO, ICICI Prudential AMC . In an interview with Kshitij Anand of ETMarkets.com, he shared his views on markets, GST and the behaviour of retail investors. Excerpt-

ETMarkets.com: How significant is GST reform for the economy? It looks like the market has already factored in most of the upside from the reforms? What is your take on the whole equation?
Nimesh Shah: Over the years, the goods and services tax (GST) has become a symbol of reforms in the country for both Indian as well as foreign institutional investors (FIIs). With the passage of the GST bill, sentiments have surely improved, but it is imperative to understand that the GST is unlikely to change things overnight.

As a country, we will be reaping the benefits of this reform over the next five to seven years, and not in next five months. Now the size of the organised sector in several industries is bound to go up, thanks to the improved compliance of taxation because of the nature of GST and its benefits for the economy.

At current valuation, the market seems to have fully factored in the positives of the bill. One must take cognisance of the fact that a rerating of the Indian market is likely to happen over the long run. However, if there is an immediate re-rating, solely based on the expected positives, the market is likely to see some correction.

ETMarkets.com: The domestic market is already trading at valuations that are above historic highs. Is there potential for more upside or should investors brace for a sharp fall? Some experts even call this a new normal. What is your take?
Nimesh Shah: It is premature to say high valuation is the new normal for the Indian equity market. There is a plethora of factors in the form of good monsoon, repressed oil price, bottoming of earnings de-growth, which are currently supporting market valuations.

Adding to this is the unique growth challenges of the developed markets, which make emerging markets, especially India, look attractive. However, a sharp upside from current level looks challenging at this point of time.

At the same time, one cannot completely turn a blind eye to the possibility of volatile times arising due to negative global news flow.

Historically, it has been observed that negatives on the global front have managed to trump the positives on the local front. But prudent action in times of volatility would be to use that as an opportunity.

ETMarkets.com: Has the retail investor matured in the way he invests in equities now?
Nimesh Shah: There has been a remarkable improvement over the past few years in the way retail investors invest in equities. Over the past couple of years, retail investors have preferred to approach stock market via the mutual fund route, rather than investing directly in stocks.

We see this as an acknowledgement of mutual fund industry’s robust track record, well designed and very well regulated product line and transparency.

Within the mutual fund route, the heartening feature is that increasingly funds are coming through the SIP route. As an industry, we have witnessed the SIP book swell from Rs 1,800 crore in March 2015 to nearly Rs 3,000 crore per month and growing. Other than this, the other major positive is the change in investment behaviour.

There was a time when investors used to enter at market highs and would sell in case of a correction, leading to negative investor experience. However, this has changed now, thanks to the relentless investor education initiatives by the media, distributors and fund houses. Now, the mantra is to stay invested and not be swayed by market swings.

ETMarkets.com: Can a retail investor become a crorepati by just following the SIP approach? If yes, on an average how much he needs to set aside every month to achieve that goal?
Nimesh Shah: Yes, if a retail investor invests in a diversified equity fund through a systematic investment plan over the long term, she/he can become a crorepati. For example, Rs 20,000 invested through a monthly SIP for about 15 years can grow to over Rs 1 crore, if you assume a rate of return of 12 per cent.

ETMarkets.com: Is the big bull run intact in in the domestic market? The Indian market is already up 20 per cent from its 52-week low. Do you think the current bull run is driven by liquidity rather than fundamentals? If yes, are we staring at a big slide as soon as the liquidity tap dries up?
Nimesh Shah: The current rally is fuelled by both domestic as well as global factors. One has to take into account that the current rally in emerging markets is happening after 3-4 years of underperformance vis-a-vis developed markets.

At a time when almost all the developed nations of the world are facing a zero or sub-zero interest rates coupled with muted growth, India is emerging as an oasis of growth.

Going forward, gradual improvement in demand and strong operating leverage will drive earnings in the upcoming quarters, rendering the much-required earnings support.

All these factors are likely to support the equity markets, even at a time when liquidity starts to taper down.

ETMarkets.com: What is your call on the bond market? Should investors go for debt funds?
Nimesh Shah: The Indian bond market has been an attractive bet for global investors thus far. The four factors that have worked in favour of India are a) a well-managed current account deficit (CAD), b) benign global commodity prices, c) favourable credit growth trajectory and d) non-inflationary Government policies.

Thanks to the prevailing interest rate scenario in global markets, the Reserve Bank of India (RBI) is likely to maintain an accommodative policy stance given the uncertainties on account of international factors.

We are of the view that yields will head lower in the days ahead. Therefore, we would recommend short to medium duration or accrual funds for incremental allocation.

ETMarkets.com: Fitch said the global bond market is at risk of losing $3.8 trillion. How are we placed in the global equation?
Nimesh Shah: India is far better placed in the context of international fixed income markets. In the developed markets, interest rates are at a historic low while in the case of India, interest rates are still elevated. The focus of monetary policy now is more towards managing inflation and globally it is on renewing growth.

Over the last three years, GOI and the RBI have managed to get current account deficit and domestic inflation under control, along with moderate growth and political stability. As long as this equation is not juggled with, India is well placed in the global equation.

ETMarkets.com: Can you name five stocks that you think could fetch multibagger return over the next 2-3 years. And why?
Nimesh Shah: In the current market, construction, auto ancillaries, pharma and healthcare services are the pockets that are in a position to generate attractive returns in the medium term.

ETMarkets.com: ICICI Prudential AMC has become the largest asset management company in the country. What are your five key takeaways from your journey so far?
Nimesh Shah: Our journey to the top (as the largest asset management company) has been accompanied by much learning. Primarily, as an industry, we realise when a product is transparent and is beneficial to the investor, the industry is bound to multiply several folds, with time.

Our experience shows that a fund house with a proven track record of managing investor money is bound to attract more investments.

As for investment experience, it is a noted phenomenon that investors shy away from investing in equities when valuations are cheap. Therefore, we have products like balanced, dynamic asset allocation funds that aim to benefit out of volatility and provide a better investment experience.

Lastly, one of the inherent challenges has always been simplifying the process of investing. As of now, the inflows into mutual fund schemes are limited through banking channels, thereby missing on the cash payment channel.

Once Sebi’s uniform KYC regulation is implemented, these processes are likely to be simpler, thereby aiding larger participation across financial class.

Source: http://goo.gl/04HWjP

Interview :: Top four investment mantras to beat market volatility: Madhusudan Kela

ECONOMICTIMES.COM | Jan 25, 2016, 02.54PM IST

NEW DELHI: Domestic investors may have lost close to Rs 9 lakh crore on the BSE so far in calendar 2016, largely led by a global selloff in equities, but Madhusudan Kela, Chief Investment Strategist at Reliance Capital, says the long-term bull market in India remains 100 per cent intact.

“The long-term India story is intact. I can thump the table and say that the long-term India story is intact. The bull market is 100 per cent intact. If it was not, I would not be giving you interviews,” Kela said.

Kela said what the domestic market is going through is a structural correction, and it is not in a bear market as such. The current correction across the globe might look like similar to what we witnessed in 2008, but the situation is not the same at least for India.

“This is a structural correction which may last a couple of months because once markets fall, specifically globally, a consolidation can happen,” Kela said.

“We have to watch the global events. I am not saying whether it is 2008 or not 2008. At this point of time as things stand, it does not look like 2008 at least for a country like India,” he said.

Madhusudan Kela listed four investment mantras in an interview with ET Now, which he said can steer investors comfortably in a volatile market:

Stay put in equities

One cannot evaluate performance based on six months’ return, because equity investment is not supposed to be made for six months or 12 months, specifically by retail investors. It is more of a long-term play.

“When you buy equity, why are you gauging your performance. Let us mind it, a majority of the Indian public has not yet participated in the market. We know the numbers, not even 3 per cent of the savings has come in yet to the stock market,” Kela said.

“Even though inflows to mutual funds in the past 12 months have been very good, if I take a five-year cumulative view, there is still net outflow from equities,” he said.

The absolute saving has gone up, the absolute size of GDP has gone up, the absolute size of financial savings has gone up, but net-net no money has come into equity. So this kind of a correction which has kept the medium and long-term bull market intact is a fantastic opportunity (for investors who are looking to invest in equity markets).

Buy systematically for great returns

Long-term bull markets remain intact, and investors should look at buying Indian equity systematically. “Do not be afraid. Just because Madhu Kela said that 7,200 is a good point to buy, you don’t put all your money at 7,200,” explains Kela.

“What I am saying is that markets have their own reasons and we all make our assessments and judgements based on what are the variables which are available today. If the variables change, we will change our opinion, but I am saying anyone who systematically invests through this year, he will make money in the next three to five years” he said.

Kela expects the market to be much more volatile in the first six months.

Contra call: Buy banks for next 3-4 years

Banking stocks have been on the wrong side of the market so far in calendar 2016. The S&P BSE banking index has lost nearly 10 per cent so far, with some stocks registering a double-digit cut.

“There is definitely some absolute problem in the banking space, but I think the fears are significantly exaggerated. When I meet the analyst community, even for private sector banks, they want to tell me whatever is their corporate and international book, 30 per cent will be completely written off. You take 50 per cent might be bad assets,” Kela said.

“If I take 25-30 per cent off from the balance sheet, which is to be written off over the next three-four years, some of these banks are trading at very compelling opportunities from a three-four-year perspective. Investors who have a three-four years perspective should buy bank stocks than put money in bank deposits,” Kela said.

Hope for midcap investors

The fall in the Indian market was largely led by a double-digit fall in most of the smallcap and midcap stocks, which outperformed the market in the previous calendar.

“I would not say all midcaps have a problem. Wherever there was too much euphoria, all those have corrected now,” Kela said. “Some of the midcap companies have been seeing some kind of euphoria in the last two-three years, which got built into because a number of new investors have come in,” he said.

Source : http://goo.gl/ERVnCX

The trend of rising domestic investment is likely to continue: S Krishna Kumar

Interview with CIO, Equity, Sundaram Mutual Fund
Ashley Coutinho | Mumbai | January 4, 2016 Last Updated at 22:49 IST | Business Standard

India should view the coming rate increases in the US as positive, as they show the Federal Reserve’s confidence on US growth, says S Krishna Kumar, chief investment officer, equity, at Sundaram Mutual Fund. He tells Ashley Coutinho the trend of rising domestic investment is likely to continue, reflecting a conviction in the India story. Edited excerpts:

Equity markets have seen a sustained fall since March last year. What is your outlook for the year ahead?

India stands out purely on its macro credentials. This macro strength is visible in the rupee’s resilience, fourth among a pack of 24 emerging markets(EMs). Being the largest growing economy in the world, with inflation containment and fiscal prudence, India will continue to remain differentiated in the EM space.

Will EMs such as India be in trouble if the US Fed goes aggressive on rate hikes this year?

The Fed’s December policy statement broadly clarifies three aspects — the policy stance, policy pace and balance sheet size. First, it has announced an end to an early decade-long policy of near-zero interest rates and is looking to normalise. On the pace of rate rise, it indicates a rise of around 100basis points for the year, implying 25 bps each quarter. However, a cut of 50 bps over 2016 is more likely. Third, and more important, it indicated the balance sheet size would not see a contraction and there would be a rollover of maturing treasuries and reinvestment of principal payments. This is of greater importance, as any balance sheet contraction would mean liquidity contraction and a rise in the effective Fed funds rate.

The Fed rate rise comes as a big relief for Indian markets, removing a large cloud of uncertainty. In fact, India should view the moderate rate increases in the US as positive, as this is clearly reflective of the Fed’s confidence on US growth. And, as we all know, better US growth is good for global growth and certainly positive for India.

Your assessment of the third-quarter performance of Indian companies?

We expect it to be much better than the previous quarters, from a year-on-year growth perspective. Further, the profitability improvement due to input cost savings will play a much bigger role in offsetting the deflationary impact of revenue growth. However, we see the global cyclical like commodity players continuing to suffer earnings erosion.

It’s largely the domestic institutional players that supported the market last year. Do you expect this trend to continue in 2016?

The trend of rising domestic investment is likely to continue, reflective of conviction in the India story. More important, in this volatile phase, the average investor has shown remarkable maturity and resilience. The structural increase in households’ savings rate, on the back of falling inflation, coupled with the unattractive returns from physical assets, will continue to support the domestic equity flows.

Which sectors are you bullish on?

The economy is getting back on track, while benefiting from lower inflation and rates. As investors, we are positive on cyclical sectors that feed on the economic recovery theme, such as industrials, engineering & capital goods,transportation and financials. The potential rise in disposable income, on the back of softening inflation in urban India and the seventh pay commission largesse, will definitely help consumer discretionary sectors like automobiles, lifestyle products, durables, retail and entertainment. These represent our positive bias. We remain negative on pharmaceuticals, fast moving consumer goods, telecom, information technology and metals.

Your advice to retail investors?

Retail (small) investors appear to have as much conviction in the India story asus. Still, they need constant support and reiteration in these volatile times. Invest regularly with an asset allocation that is suitable to your needs and risk appetite. Discipline, patience and diversification are important to being successful in long-term wealth creation. After the recent correction, I would recommend investors to also look at lump-sum allocation to equities.

Source: http://goo.gl/vVddGo