The ?open-ended? buying of bonds by the US Fed is a great boost to the global equity markets in general and India in particular, says Saibal Ghosh, chief investment officer, Aegon Religare Life Insurance. He tells Ashish Rukhaiyar that for FIIs, India is ?not a bad high beta stock? to have in their portfolio. Excerpts:

The government has finally kickstarted the reform process. What will be its impact on the markets, considering that there hasn?t been much change on the fundamental front?

This is definitely a very positive start. There are two most important things that the government needs to do. One, kickstart the investment cycle and, two, consolidate the fiscal path. On the first point, one must understand that investment is a prerequisite for growth, to sustain over a long period. But, unfortunately for us, the investments, or the gross fixed capital formation as the economists like to describe it, have been slipping consistently from June 2011.

Investments, as a percentage of the GDP, has now come down to 32% against 35% in 2008. Historically, the investment cycle growth has been a precursor to the consumption lead growth. The arithmetic is simple. If an economy is operating almost in full capacity and less and less new capacities are being added, then somewhere down the line, even the most robust consumption engine will begin to sputter steam, which has started to happen in our case. On fiscal consolidation, the aim of the government is to reduce the subsidies, which have now reached to an unsustainable level of 2.5% of the GDP and, at the same time, improve the tax-to-GDP-ratio significantly from here.

What is your view on the RBI making a surprise cut in CRR while keeping rates intact?

It is a very logical move. Apart from releasing an immediate liquidity in the system, just before the busy credit season starts from October, the RBI has also ensured the increase in money multiplier. The money multiplier or, to put it simply, the number of times the money changes hands in the economy, has a long-term sustainable effect on system liquidity. Therefore, CRR cut should not be viewed only as a one-time liquidity infusion by the RBI. I think, this time around, the RBI has made it very clear by its action that it is willing to do more to propel the economy growth, should the government take more concrete steps towards reducing the fiscal deficit. If that happens, we can expect more monetary easing from the Reserve Bank.

How comfortable are you with the current valuations? It seems that global liquidity will only go up from here…

The market is no more cheap at the current level. However, stock specific valuations are extremely skewed and there are enough opportunities available in different pockets of the market. One has to be extremely careful while buying at the current level. But since this is a liquidity driven rally, it could be very sharp in the initial phase. You will be left out from participating in the rally if you exercise too much caution and may burn your fingers if you exercise too less of it.

The fresh money that is coming into the insurance sector is more towards traditional products. Has it affected the insurance companies? participation in equity market?

The share of Ulips has definitely come down, but is still significant. And this has affected the insurance companies? flow into the equity market. If you remember, when the credit crisis happened in 2008 and FIIs sold big time, it was the insurance companies that supported the market in a big way.

This time around, I am not so sure that the domestic institutional investors, including the insurance companies, remain a large influencing force in the market.

Have Ulips lost their attractiveness to customers?

On the contrary, I would like to point out that post the change in regulations, Ulip has become much more attractive. At some point of time, people will realise that in the long run, the new commission structure is extremely attractive for them.

Besides, I think the insurance companies in general, have also developed tremendous fund management skills and effective investor communications over the years. In the days to come, these two factors will pull the customers back to the Ulip market.