Expect bullish market over next 3 yrs, better inflows with stable govt

Written by Jash Kriplani | Updated: Apr 4 2014, 18:13pm hrs
Indian MarketThere is a high probability of CPI inflation coming down given the fact there is a fall in food and vegetable prices. (Reuters)
Indian markets are likely to remain bullish over the next three years, believes Birla Sun Life AMC CEO A Balasubramanian. In an interview with Jash Kriplani, Balasubramanian says drop in inflation would eventually bring down interest rates. Exceprts:

Where do you see the markets heading till election results are declared on May 16 At what levels you see the Sensex trading on the eve of results

Though it is difficult to put any level for the index, overall we are confident that we are getting into the long-awaited bullish outlook. This will get further reaffirmed after the outcome of the election. We are at an inflection point from the global economic recovery point of view. All things put together, we may see a good bullish market over next three years.

When can we expect domestic investors interest reviving

It is sad that domestic investors have not participated in the recent rally. FIIs find India better-placed among their global choices, including emerging markets. We are told India will get more inflows as we move forward if a stable government is elected. Indian investors cant ignore our markets for too long. They have to increase the allocation to equity given the fact that drop in inflation will eventually bring down the interest rate.

What were your expectations from the monetary policy

Broadly, the monetary policy outcome was in line with the market expectation. We dont expect this to have any impact on rates. So, there will be no impact on mutual fund fixed income schemes.

With the wholesale price index at a nine-month low and CPI inflation at a 24-month low, do you think inflationary pressures are behind us

There is a high probability of CPI inflation coming down given the fact there is a fall in food and vegetable prices. Recent drop in rupee-dollar movement could also have some impact on fuel prices in the economy. Overall, the outlook on inflation trend does not look scary.

Is there a renewed interest by the retail investors

Not much, however, we are seeing the flows beginning to happen. In last two months, there has been a decent flow into equity schemes, though they are not big enough to talk about.

Diversified mid-caps have started outperforming large cap peers. Do you expect mid-caps to continue to outperform

In the recent past, mid-cap funds have delivered better returns than large caps. In any market, after any big move in large-caps, interest does get generated in mid-caps. This cycle is seen every time a bullish signal gets formed. However, performance of mid-cap funds will be largely related to the trend emerging on the basis of the economic growth expectation.

Are we seeing money shifting from debt to equity schemes

We are seeing inflows into both the asset classes as of now. While in fixed income, largely accrual-oriented schemes have been seeing inflows, in equity, we have witnessed inflows into large-cap oriented schemes such as Birla Frontline Equity. Having said so, we are also seeing inflows into new fund launches which in our belief shows renewed interest towards equity.

According to Goldman Sachs, corporate earnings downgrades seem to have bottomed out. What are your expectations of Q4 corporate earnings

Overall it seems earnings will show an uptrend in all the sectors. There has been a pick up in domestic sales in sectors like auto, textiles and cement. We have also seen more or less the worst getting behind us. Once the investment cycle picks up, we may see companies reporting better numbers. But, there is a caution to our assumption: Corporates are yet to echo our opinion.

Are we seeing more portfolio churning taking place to accommodate cyclical stocks

There is no doubt cyclical stocks do perform when there is a strong belief that the economic recovery will be back soon. It is to be noted the fund managers do take allocations to reflect such views in the portfolio by owning cyclical stocks and benefit out of this.