The Indian equity market may have given dismal returns in the last four years but this is a good time to build an equity portfolio, believes Mahesh Patil, co-chief investment officer, Birla Sun Life Mutual Fund. In an interview with FE?s Ashley Coutinho, Patil says the need of the hour is to stimulate investment climate and sort out bottlenecks with regard to land availability and fuel supply. Excerpts:
What is your outlook for the Indian equity market this year?
With the flow of liquidity ebbing, the market will now look to consolidate as the focus comes back on the fundamentals of the Indian economy.
Given the current macro situation, we definitely see things slowing down. We expect the GDP to grow by around 7% for FY13, lower than the 7.6% growth estimated in the budget. The market will be range-bound as most of the negatives, including downward earnings revisions, has been priced in. I don?t expect major downgrades going ahead. The interest rates have peaked out as well and the global liquidity is expected to remain benign.
What do you make of the market movements post Budget?
The market was hoping the Budget would lay down a road map for fiscal consolidation and stimulation of GDP growth. However, the Budget did not spell out a credible path for fiscal correction and stopped short of announcing any big bang reform measures. That was a bit disappointing. It is unlikely the government will be able meet the fiscal target set out in the Budget unless it reduces its expenditure on the subsidy front.
What is the way out?
Reforms are needed to stimulate the investment climate. A lot of private sector projects are stuck in the metal and power space. It is difficult for promoters to go out and invest more capital when their existing capital is stuck and not giving any returns. Availability of land for mining, fuel supply and coal linkages are some of the problem areas.
Which sectors are you betting on this year?
Some correction was seen in the rate sensitives and we feel this is a good opportunity to buy them. However, we don?t expect any big sector moves to play out this year; the action is more likely to be stock specific. Individual stocks may do better than the broader markets and one has to look at earnings growth and balance sheet before deciding what to buy.
What are the global cues to watch out for?
The risk of one of the peripheral economies going bust has eased off quite a bit. Right now, even if Greece defaults, the markets will be able to absorb the shock because of ample liquidity. Europe is in a mild recession; the US is recovering but whether the recovery sustains is a question mark.
The FIIs have invested about $9 billion so far. Will the inflows peter out going forward?
The inflows will depend on how the fundamentals of the economy shape up. If we see another round of quantitative easing in the US, we might see more money coming in.
What is your advice to retail investors?
Retail investors have not made any money in equities in the last four years. So, understandably, investors are getting frustrated and moving out of equities. But this is not the right time to move out of equities because from here on, a lot of structural factors could prove adverse for a lot of the other asset classes. Earnings growth will continue to remain at 12-13% even in a worst-case scenario. With valuations depressed, this is a good time to build the equity portfolio.