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Don't expect markets to give very high returns this year: Prasun Gajri, HDFC Life Insurance
By ET Now | 13 Jul, 2013, 05.08PM IST
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In an interview with ET Now's Nikunj Dalmia, Prasun Gajri, CIO, HDFC Life Insurance, shares his views on the markets. Excerpts: ET Now: The big picture is that macro is looking slightly challenging, money is moving out of the markets and crude prices are refusing to come down. Prasun Gajri: Yes, the macro is clearly challenging and that is what is reflected in the way the rupee has been behaving. So that is a clear indication that any capital inflow or outflow, which happens very quickly, can lead to a large change in the way our macro is positioned. So that has been a problem for a while, it is just getting accentuated.
The market today is in a complete risk off mode where we
ET Now: Is it a time now to hunker down all the recovery expectations? Prasun Gajri: If you are looking at current account that is a challenging problem,, which is not going to go in a hurry. Clearly, one can argue whether it is $80 billion or $90 billion, but we have to fund somewhere to the tune of $80 to $90 billion every year at least for this year and that will require reasonably benign global flows. Therefore, that problem remains. On the fiscal side, while the intentions from the government do seem to indicate that they
continue to give higher multiples to sectors where the fundamentals are deteriorating, says Prasun Gajri
'Infosys needs to do many things to warrant a re-rating' Nifty may climb to 6050-6100 levels by
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We saw some outflows in June. want to control the fiscal at 4. little progress on the disinvestment.The E. Inflation definitely seems to be under control. something has to happen either positive or extremely negative. I do not think there is too much debate about that.. the tax numbers for the first two months. Tat is something which is again a positive sign. So that is one big positive which has emerged.8% of GDP. HDFC Life Insurance . won’t buy Infosys' Mode of divestment will be decided by DoD. but the valuations are just getting beaten up every single day.Don't expect markets to give very high returns this year: Prasun Gajri. http://economictimes. So I would agree that the range is there. For the markets to really move out of the range. So the nature of what performs in the market or does not perform in the market could be interesting. The market today is in a complete risk off mode where we continue to give higher multiples to sectors where the fundamentals are clearly deteriorating..com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. ET Now: The argument for Indian equities at least for next one year is not very constructive and given the kind of macros we are working with looks like that we could be in a range for another one year? Tuesday: Analyst 'Remain positive on pharma space. So if they sell what they own then clearly some of the stocks which are at very high valuations will not do so well and some of the stocks which are at completely beaten down valuations may sustain. and food security bill. So that correlation between the rupee falling and interest rates also rising seems to have broken down a little bit over the last few days. but that was hardly anything compared to the inflows which we have seen this year and in the earlier year as well.. what underperforms is something which remains to be seen. Cabinet: NHPC 'Markets need to moderate Infosys growth expectations' ET SPECIAL: Checkout Luxury Home Trends Prasun Gajri: We could be in a range for another one year.. So clearly that dichotomy may change over the next 12 months. but the valuations are higher than what they were 12 months back and there are some other sectors where the fundamentals are clearly weak. 2 of 12 13-07-2013 21:37 . Interest rates have not really moved up too much despite the rupee cracking. but having said that what sectors do well and what do not may not necessarily follow what has been happening in the past and that is going to be something which could be different. it is going to be a very tough challenge given the slowdown in the economy.indiatimes. especially if you see FII outflows and ETF outflows from the Indian market that is something which may undergo a change. So clearly what outperforms.
I do not think there are any great expectations from this quarter. HDFC Life Insurance . http://economictimes.. that is something which has been the case for a while. what has happened to bond yields and commodity prices? Prasun Gajri: See there could have been noise. so it does not necessarily make it all that noisy. but overall no major expectations from this quarter.. Most people anticipate virtually zero to very-very low growth for this quarter.com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. So we are not really building in any major positive surprises.. 3 of 12 13-07-2013 21:37 .indiatimes. ET Now: Do you expect that Q1 numbers will be rather noisy given the way how the rupee has moved for the quarter gone by.Don't expect markets to give very high returns this year: Prasun Gajri. So I do not think that really clouds the things. but the fact is that the rupee movement does not tend to appear in the P&L given the way the accounting is done.The E. Having said that. It tends to go into the balance sheet. The interest rates have moved..
but they are not as bad as being made out. I don't think that it can give me a very high double digit return this year. but there are enough stocks which are trading at post-2008 lows with may be weak fundamentals. One has to follow a balanced approach.indiatimes. but do the valuations really justify that? That is something which will remain to be seen and second aspect is if there is actually a sell off in the Indian equity markets from the global investors. ET Now: What do you make of the global mood? One is getting a sense that we are staring at a divided world and emerging market equities are underperforming developed market equities. If you look around. nobody is really going to question you. So I do not have major expectations from this market.The E. but structurally the economy needs to get back to 7-7.. It is an easier decision. So that is a distinction one will have to start making at some point of time and have that balanced approach to the portfolio. Obviously these categories are still doing well. We will be stuck around 5. but having said that is where I do believe there could be some sense of complacency which could be set in and that gives an opportunity to really look at that from a very different perspective. We are seeing a relative slowdown..5-6% for a while if we do not change that. It is a safe decision from a fund manager's perspective. On the market. clearly the market is bipolar while the valuations may look reasonable from averages perspective. but you could actually make reasonable returns if you get your sectors right. So it is a stock-specific market.5% growth. I am not suggesting either of the two strategies. ET Now: If you are of the view that one should still be buying into high beta and one should not get obsessed with quality. what are the options which are left? Prasun Gajri: No. there is a relative slowdown.. http://economictimes. it is easy decision to be safe today. it is very little chance of you going wrong effectively.com/opinion/interviews/dont-expect-markets-to-give-very-high-retur.Don't expect markets to give very high returns this year: Prasun Gajri. I cannot get into specific names. there is a part of the market which is completely trading at the lows post the global financial crisis and there is another part of the market which is trading at all-time highs in terms of valuations. 4 of 12 13-07-2013 21:37 . ET Now: So what could be the next big trigger because you are sounding more bearish than bullish to me? Prasun Gajri: If I have to talk about the economy it is a more balanced view where we will see probably better growth. but having said that it is not a market which is always going to help being in quality. I guess the stocks which will be more vulnerable are the high valued stock. HDFC Life Insurance .. I do not think it is a market which has helped being in high beta very clearly.
http://economictimes. Prasun Gajri: The story which has been for a while is a stronger US growth and weaker Europe and probably a little bit better Japan and a weaker China. HDFC Life Insurance ... but how strong does it really get? We are still talking about 2 to 2.5% kind of growth! 5 of 12 13-07-2013 21:37 .com/opinion/interviews/dont-expect-markets-to-give-very-high-retur.Don't expect markets to give very high returns this year: Prasun Gajri. Now that is something which seems to be driving the global economy at the moment.indiatimes.The E. Now the question remains how strong is really the US economy? The indicators we have seen so far do point out that it is coming out from the lows... and at the margin that is something which is going to drive the global asset prices as well.
indiatimes. The fiscal situation in the US is still nothing great and it remains to be seen if once the QE starts tapering off whether the economy really stays as strong as it is being made out to be or are there repercussions of higher interest rates in the US and the economic growth in the US because we have clearly seen the bond yields and the mortgage rates rise fairly substantial in the US. So while on a cyclical basis. ET Now: When do you think will be the turning point where retail investors will start pulling money out of fixed income products and they could revisit equities? Prasun Gajri: Equity market has to do well for a while and sustain itself and get some positive buzz around it for the retail investor to come. So it could be a little bit longer than one anticipates.. HDFC Life Insurance . the fiscal situation in emerging markets is still better than most of the developed world and the opportunities in the emerging markets could still possibly be better than a lot of the developed markets. but I do not think the inflows are very exciting either.. It is difficult to write off the emerging markets so quickly and so soon. real interest rates have to become positive. What are local insurance firms doing. See a larger amount of retail investors whosoever have entered in 2007-2008 is a complete dissolution and nothing really to blame the investor because the markets have been like that and therefore it is going to take a little bit of time. So they had a large amount of accumulated cash which has been put to work now. but overall I do not see too much of fund flows into the equity markets for the domestic institutional investors at that moment. ET Now: Let us look at the local fund flow situation whereas LIC has become a net buyer. there is a slowdown in emerging markets. are you also putting money to work or redemption is still a problem? Prasun Gajri: The local insurance companies are not necessarily getting the flows at the same pace as they were getting.com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. but structurally I do not think the emerging market theme is broken. markets have to sustain. Yes. So it is a fairly linked process. Only then one will see the retail investors being keen on the equity markets.Don't expect markets to give very high returns this year: Prasun Gajri. http://economictimes. but clearly LIC was a big seller in the Jan to March quarter when most of us and other private insurance companies were clearly buying. I do not think their net redemptions are at a very serious level. but clearly if the US actually picks up. 6 of 12 13-07-2013 21:37 .. the emerging markets also should do well and once that happens you could see the fund flows back to the emerging markets and emerging markets again starting doing well. LIC seems to have been a big buyer.The E.. short term basis what you are saying is right. The emerging market will still give you between 5 and 7% kind of growth.
com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. http://economictimes. it is time to buy companies which will benefit because of weak rupee.The E...indiatimes. IT.. The consensus call is that it is time to buy into pharma.Don't expect markets to give very high returns this year: Prasun Gajri. HDFC Life Insurance . ET Now: Let us look at currency sensitives now.. Do you see there is merit in this trade? 7 of 12 13-07-2013 21:37 .
or further investments in the business and it is not getting reflected in the margins. Prasun Gajri: Currency is a big beneficiary for sectors like pharma and IT. While we may look at hedging our bets a little bit here and there. which has not really happened so far. in fact we have taken a lot of near-term pain because we have been aligned purely on valuation basis. you might as well play the valuations and stick onto it. a lot of those benefits tend to be spent away either in terms of pricing. I would be a little bit wary of really putting that into numbers over the longer term. If I were to really look at it. ET Now: What is the best way to approach consumers? Again the Street is divided on what exactly it should do when it comes to consumer names? Prasun Gajri: It is very easy to say get out of consumers but I do not think people would be very happy to get out of consumers because that is a trade which has played over the last two-two and a half years without any problem and it is a fairly easy trade. http://economictimes. So clearly put more money to work on ideas which are more reliant on rural consumption than urban consumption. or further spending. if the earning growth is still reasonable.indiatimes. so there could be near-term pain but there could be a lot of long-term gain? Prasun Gajri: Well.The E. So. this clearly does not make sense but if the earning growth is still going to be between 15 and 20%. ET Now: Are you still hiding into defensives or are you preparing your portfolios for the next growth cycle.. For pharma it is a bigger positive. the margins of IT companies have actually shrunk over the last 12 to 18 months despite a very significant rupee depreciation. or further expansion.. One is I would be more bullish on the rural sector side of the consumption than urban consumption. We are sticking to a broad strategy. which has not really worked. two or three things stand out. So one has to differentiate between the FMCG names.Don't expect markets to give very high returns this year: Prasun Gajri. Look where the earning growth is still reasonable.com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. IT companies also depend on how the global macro plays out and how the growth in US really pans out and therefore what is the demand situation for them that is to my mind a much bigger factor and will influence some of these names much more. but if you really look at it. So while in the short term it is positive. if the earning growth is going to be 8% to 10% or 10% to 12% and the valuations are 35-40 times. but there could be a long time correction in these names. You may get a 5%-10% correction. That tells me that while it is good for their business. For IT it remains to be seen while it is a positive. but a broad strategy has been to look at stocks where we believe the valuations are pretty much reflecting all the negative which can be there and these could 8 of 12 13-07-2013 21:37 . So that would be a worry. HDFC Life Insurance . None of these companies are going to lose you any significant amount of money to be honest.. That is one aspect. it clearly allows them a lot of levy..
.. http://economictimes. HDFC Life Insurance . but that does not mean it will never work.oriented.Don't expect markets to give very high returns this year: Prasun Gajri. 9 of 12 13-07-2013 21:37 .The E. be good bets over the next 12-18 months whenever the market decides to become much more valuation..com/opinion/interviews/dont-expect-markets-to-give-very-high-retur.indiatimes.. That strategy has not really worked for a while.
Again one will have to be selective. ideas or group of stocks where you are putting money to work? Prasun Gajri: I do not think you have seen that crack as yet. It is just that over a shorter period time some of these strategies are not necessarily working because it is a clearly risk on. as a consumption theme I really love that theme that is a clearly a longer term theme in India. So the markets were pretty much discounted..Don't expect markets to give very high returns this year: Prasun Gajri.. but we are obviously watching a number of stocks. risk off trade and where you want to even in a risk on trade money is just pouring into the same defensives clearly because people believe that if they want to exit. but clearly we have not seen that correction as yet. one has to continuously focus on earnings growth and valuations.com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. We would be obviously waiting a lot. HDFC Life Insurance .indiatimes. As long as the broad valuations are aligned with what the earning growth in some of these names is going to be. So there is value in some of those names. we would be looking to buy into those names.The E. As and when the valuations start correcting. thrashed out metal stocks or under-owned industrials? Prasun Gajri: Select PSU banks clearly are reflecting possibly a really bad scenario and reasonable dividend yields with price to book at the lowest for the last five to six years. ET Now: At a time when FIIs are selling because of redemption pressures. it is much easier from there and these stocks are pretty good in terms of fundamentals and the earnings growth is reasonable. we have not seen that correction in any meaningful manner. but our bias will clearly be towards something which is valuationoriented. ET Now: So where is deep value in this market? Is there a lot of value in beaten down PSU banks.. So we need to kind of take a balanced approach and manage that. Now that is one strategy which has worked. Even if there has been some selling. ET Now: But what happens in a scenario where the change is not strong or the economic recovery really disappoints in the coming quarters? Prasun Gajri: I do not think there is a major correlation between high GDP growth and very good returns from the equity market. ET Now: What is your take on interest rates? 10 of 12 13-07-2013 21:37 . I would not be too perturb if the GDP growth numbers do not really add up to 6% plus. http://economictimes.. which are some of the key names.
If the government decides to borrow more. two factors are at play...indiatimes. the SLR numbers of the banks have actually come down over the last six months. 11 of 12 13-07-2013 21:37 . So I do not think the market is anticipating that either.com/opinion/interviews/dont-expect-markets-to-give-very-high-retur. http://economictimes.. Prasun Gajri: Clearly the rate cuts are off the table. HDFC Life Insurance . I do not think the RBI is going to do too much in the July policy.The E. In the short run yields are going to be range-bound. nothing much is going to happen because there are really no triggers.Don't expect markets to give very high returns this year: Prasun Gajri. that would be a cause for concern. I would be a little bit concerned on the fiscal situation. but having said that and given the fact that the credit growth in the system seems to be fairly lacklustre.. Having said that.
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