India Remains A Long-Term Buy Despite Lifetime Highs, Says Birla Sun Life AMC

A level of 30,000 plus on the Sensex is definitely a new high and it has come after a very long wait. If you look at the last three years, we had an expectation that the market will touch a new high. Now it has come, and that is something which you want to feel happy about. Second, while the index has moved up, it can continue to remain buoyant, market corrections could be here and there. It normally happens in every market that goes up. We will see some correction, and investors need not worry about it. The expectation on economic growth remains reasonably good. And therefore, the way we look at it is, it remains a buy in the longer term.

I think from the government point of view, whatever they have been doing since the last three years, whatever they have been doing has to start reflecting in the numbers. One of course is the GDP, and second the industrial production numbers, that is happening from the government in terms of roads and other areas. We will probably see some success there, and that has to reflect on the industrial production numbers. Secondly, the government’s push towards low-cost housing, that could potentially could be the game changer for India. All put together, the overall expectation from the economy continues to remain good. Last but not the least, the stable rate scenario that we have been witnessing for the last many number of years. Even now, though, globally interest rates are on an upcycle, definitely from an India point of view we are definitely not seeing any upcycle till 2018. This essentially means a stable interest rates scenario for India, and therefore low cost of borrowing. This also means the topline could potentially grow. All combinations put together, the expectations remains reasonably good.

In the last few years, we have seen significant improvement in terms of flows into mutual fund asset class, especially in equity, is an outcome of incremental savings not going towards physical assets such as gold and real estate. Probably the trend will continue going much forward and I think that is something which we all are expecting in the mutual fund industry. In terms of existing assets, a lot of people have got locked up in real estate and gold. Gold is something, people don’t want to sell whereas real estate is something you want to sell but you don’t get liquidity when you go to the market for selling. As a revival is seen in the real estate market, that could be driven by low mortgage rates that we are seeing today. That could lead to improvement in the offtake for real estate as an asset class. Once that comes, once we see buying and selling in real estate assets...we’ll probably see people who are selling houses because they already have one or two houses, and therefore have to reduce exposure to real estate and to the financial asset class, and that trend, I think, should begin to happen in the next few years. But in terms incremental investments, we are already seeing a large pool of investors, are already considering the financial asset class, especially in mutual fund, as against the traditional way of saving money either in gold or in the real estate or any other mode of investing other than capital market assets.

IT is a bit of a dilemma because the company balance sheets are very strong, they are sitting on cash, therefore they have a high dividend yield. At the same time there are headwinds such as H-1B visas. There is also a change in the whole technology platform with fintech coming in. The traditional ways of building software applications are coming under a question mark. How each of these companies are evolving in the emerging space as well as the way the U.S. is looking at outsourcing software requirements is something we have to give some time to, before we come to a conclusion.

On the lending side, we have seen continuous growth in excess of more than 18 percent, and retail credit has been pretty decent and mortgage lending has also been growing reasonably well. On the personal loan side, we have seen reasonable growth. Loan growth has been slow only in the corporate sector. The institutional investors and the corporate sector have not been big borrowers. The big borrowers have been looking at rising equity money to pay off their debt. We have been focusing on retail-oriented banks and non-banking financial institutions (NBFCs), and that continues to be our focus area. Going forward, earnings growth in these sectors, are going to be far superior than the larger headline numbers that we will see in the banking and financial services sector as a whole. Having said that, within public sector banks, wherever the balance sheets are bigger and the NPA worries are lower, and they have taken proactive steps to build a retail base, selectively we have been bullish as far as PSU banks are concerned.

That’s precisely why we still take a cautious stance as far as public sector banks are concerned. The new provisioning that can potentially come around sectors like telecom, and how that is going to have an impact. Secondly, how will some of existing recoveries that we are seeing come faster than what was expected earlier, there are some question marks around that. So from a public sector bank point of view, these are some of the thing that are a hanging sword to take a larger bet and see how this evolves, and see the inflection point and take a call on that. As a fund house, we have been very agile to this kind of emerging trend, looking at the balance sheet, and how they are building the business.

RERA will benefit consumers or buyers at large. Then comes the manufacturer. Any company which is a well-run company, with an institutionalised format, has survived for many years, that’s the kind if company that will continue to survive and remain one of the bigger players to operate in the market.

I think the best way to play this entire segment is through the diversified equity funds, we call it the multi-equity cap fund. Second way to play this theme is to look at banking and financial service funds – Birla Sun Life Mutual Fund has that product – so look at that as a product which is basically playing through the consumption theme, as well as through the infrastructure theme. One of the things that investors can always consider is the banking and financial services sector as a proxy to not just the economy but also a proxy to the retail earnings growth that you are seeing in the country.