category. There are some changes we expect on some of the investment benefits such as initiatives in infrastructure and life insurance because retail investor money needs to get channelised into long-term instruments. Today, retail participation is very low and investments have gone into gold and real estate. It is not coming into FDs or equity markets. Whatever he can do to channelise that into the capital markets for a long-term is going to be very helpful. He could look at some form of long-term investment like long-term infrastructure, long-term equity, or inflation-linked debentures.
What is your long-term investment outlook on Indian equities? Which sectors would you put your money?
We are positive on equity markets from a long-term view subject to some of the global conditions and some domestic initiatives we take. We have already seen $8 billion coming in the first 8-9 weeks. We do not believe this number is going to change, unless we do things badly. Otherwise money is available all over the world and “risk on” is very much there. We continue to look at FMCG, banking especially private banks, and pharmaceutical as top-down sectoral stories. We would like to add on to other sectors like infrastructure and capital goods, but we want to see how certain policy actions pan out. We also believe in the bottoms-up approach of stock picking at this point in time because of valuations advantage.
But are valuations a cause for concern?
From the valuations point of view, Indian markets are trading around 14-15x one-year forward earnings. We do not see a big valuation upside but we do see a big earnings upside. For the latter to happen and for us to see 20-25% increase in equity markets, we need policy changes and we hope these policy changes happen in the budget. We believe, the FM has enough levers in his hands to make adjustments. If we do have a good budget, we foresee Indian equity markets as the best asset class to invest in this year.