Abhijeet Dey, Senior Fund Manager, BNP Paribas Mutual Fund is positive on sectors like private sector banks, insurance companies, consumer staples, paints, media, retail.
Q) Do you foresee any big correction in 2019 after a positive close in 2018? What risks should investors stay wary of in 2019?
A: Looking ahead into CY19, we believe it will be a tale of two halves with macro environment dominating the first half in the form of trade war developments, the US Fed rate movement, and then the upcoming general elections in May. After this, the focus will move towards micro factors, primarily the earnings recovery (Bloomberg consensus earnings around 15 percent in FY 19 and 26 percent in FY 20) led.
To this earnings recovery theme, we add four over-arching themes that are likely to decide how the various companies stack up on their execution. These are (a) The preparedness to benefit from framework reforms that are in place for sustainable growth in for medium to long term, (b) Economic recovery being led by consumption, (c) Gradual revival of manufacturing/investment capex, (d) Embracing and accelerating digital disruption.
In that sense, we believe that amidst the volatility this year, the stock selection across sectors and market capitalisation will be a key for outperformance.
Thus while we can have volatile moves in the market in first half of CY 19 due to macro events, we believe equity markets will be supported due to strong earnings recovery. And hence, ceteris paribus, we do not expect large corrections in equity markets.
Investors should avoid making investment decisions influenced by the greed and fear due to market volatility and should consider continuing their long term ‘goal-based’ asset allocation into the markets.
Q) Will India decouple from the developed markets' slowdown in 2019 or could it be dragged down due to the slowdown in global growth ?
A: Unlike the situation in the decade of 2000s, India accounts for one of the highest contributors to incremental demand across a wide basket of bulk commodities, particularly energy commodities such crude, coal etc. In addition to that, the country’s reasonably large profit pools from the listed equity market perspective are in sectors such as IT, Energy, Pharma, Auto and Materials sectors. In that sense, given the developments on trade wars, US Fed rate movement, etc. we don't see the equity markets being entirely decoupled from any major slowdown in the developed markets.
India in a relatively unique space. The improving capacity utilisation across a host of end-user industries, a widening tax base – thanks to GST implementation, better adoption of digital initiatives, Jan Dhan accounts as well as the likely benefits of the Insolvency and Bankruptcy code implementation makes India one of the few markets where the fundamentals are relatively strong at this point amongst emerging markets. This, if coupled with sustained benign commodity inflation, can lead to a healthy macro environment which over a
period can drive better micro level improvement.
Q) Crude oil prices have stabilised after the recent crash amid global growth concerns and oversupply. Will this prove to be a game
changer for India's growth in the coming quarters if it continues to remain stable?
A: If crude oil continues to remain stable, it could be a big benefit for the Indian macros at multiple levels. The key sensitivities be it in terms of Current account/trade deficit, CPI/WPI inflation is well articulated (refer table below). On top of this, a sustained benign price will also bolster:
- A revival of capex in a multitude of industries given that crude derivatives are used in a wide spectrum of industries;
- Also provides the Government with fiscal room to undertake some bold welfare related reforms;
- And the consumer discretionary spends to trend up at the margin.
In that sense, yes crude remains a key variable.
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