Two Risks That Max Life Sees For Indian Markets
“A second Covid-19 wave is an emerging risk since it was known that the possibility of a second wave was always there,” Vora said.
The ongoing second wave of Covid-19 in India and the huge spike in inflation expectations are tail-risks and could have a negative impact on recovery and investor sentiment, according to Max Life Insurance Co.'s Mihir Vora.
“When we began the year, it was still in the favour of commodities, reflation, stimulus and those kinds of trades. At that time, the best case was that Covid-19 will subside in a disciplined way and we should be having vaccinations in a reasonable period of time," Vora, director and chief investment officer at Max Life Insurance, told BloombergQuint’s Niraj Shah in an interview. "Except for the fact that we do see a resurgence of the virus in Brazil, India and some European countries.”
"A second Covid-19 wave is an emerging risk since it was known that the possibility of a second wave was always there," Vora said. "But the good thing that it’s happening alongside vaccination so the two should cancel each other out in the next few months."
Another tail risk that should be monitored is the spike in inflation expectations globally, according to Vora. “That’s happening as we speak and is impacting U.S. bond yields. This is making us sit on cash.”
Owing to the massive size of stimulus that the U.S. and European governments have unveiled and the fact that the U.S. is going to potentially add to that stimulus, the markets are witnessing a huge run in commodities—across lumber, edible oils and food products, he said.
“If you look at any inflation expectations gauge, it’s now running at 5-10 year highs and that is also leading to U.S. bond yields and the dollar appreciating," he said. “...there’s a thin line between the healthy and unhealthy appreciation of U.S. bond yields.”
Vora said the markets are also expecting growth, as is visible in valuations that are close to all-time highs, “at least if you look at aggregate Nifty levels”. “If it delivers, we’ll definitely see good stock-picking opportunities in different sectors.”
Structural Changes To Boost Manufacturing
Vora said India’s production-linked incentives to boost manufacturing are transparent and easy to administer. The biggest positive is that the government is selecting larger existing players that have the scale and capacity to implement such schemes which increases the probability of success, he said.
He sees India doing much better than the rest of the world in the next three to five years. Structural changes that the government has made — the PLI scheme, labour and land reforms, import duties — will come together to ensure a resurgence in manufacturing, he said.
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