Need feel-good factor to revive consumption: Exide Life CIO Shyamsunder Bhat

While the government has been responsive to the concerns of the market, private life insurer Exide Life Insurance's Chief Investment Officer Shyamsunder Bhat said that the country needs to have a feel-good factor to revive consumption. In an interview with Moneycontrol, Bhat talks about the stock market outlook and  the way forward for the economy.

Edited excerpts:

Gross Domestic Product (GDP) growth slowed down to 4.5 percent for Q2. Is that a cause of concern?

The low figure for the GDP in the recent quarter was as in line with expectations. There has been some recovery in the festive season, which should reflect in the forthcoming figures. H2 figures are expected to be better, though the increase may not be significant.

Are the volatility triggers over for the stock market?

The biggest trigger for the upmove in the stock market over the past few months has been the surprise move in terms of the significant cut in corporate tax rate. Further, the government has been responsive towards many of the concerns of the market, including the reversal of the Foreign Institutional Investor (FII) surcharge withdrawal.

Despite these steps, there are still signs of a slowdown. Why?

There has to be a feel-good factor to revive personal consumption. Personal income tax rate cuts are therefore likely in the forthcoming budget, though this could be an interim measure, as the removal of exemptions may need to be deferred to next year. The long-term capital gains tax on equities could remain, but it would be encouraging if the government were to introduce indexation on LTCG on equities.

What will be the factors behind another rally in the stock market?

While the corporate tax cut has led to an earnings upgrade, this has already been factored in by the markets. For a further rally, we may need either a further P/E re-rating(which looks difficult) or further measures to boost the economy by higher government spending.

Among sectors, BFSI has seen its share of problems with the debt crisis extending to more companies. Is the worst over?

The BFSI space appears to still have some pain left in it. A couple of companies from the banking and non-banking financial companies (NBFC) space have been able to raise capital, which is encouraging, the stronger NBFCs have been able to comfortably raise debt as well. However, the weaker banks/NBFCs are the ones where funding concerns continue. On the recoveries front, the recent Supreme Court decision on Essar Steel is positive and hopefully we will see more NCLT resolutions. Overall, our largest holding is still in the BFSI sector as far as investments are concerned.

What are the sectors you are betting on?

When it comes to the Nifty itself, we may not see an upside immediately. But we are witnessing investors selectively shifting to some of the sectors in the past few months such as automobiles, pharmaceuticals and telecom. This broadening of the market is a good sign.

We are positive on cement since valuations and cost structures are favourable, though demand is sluggish. Our view is that infrastructure and affordable/rural housing could eventually drive growth. Similarly, the 17 percent tax for new manufacturing setups will enable job creation.

We are also positive on pharma (selectively). We are also selectively positive on some of the capital goods and oil & gas stocks. We are underweight the FMCG sector due to valuations, though the outlook on this sector remains positive.

Will the disinvestment (of government entities) also be a positive?

The recently announced PSU disinvestment of stronger companies is definitely a step in the right direction, but timelines of March 2020 could be difficult to meet. We do hope that we can see disinvestment in favour of the private sector, even if it spills to the next financial year.

For insurers, isn't supply of debt papers still a concern?

The supply of corporate debt papers continues to be limited, in terms of the number of high-quality borrowers. Some are not in need of incremental debt while some are finding it lucrative to tap the overseas markets.

Will there be any tweaks in the duration of your debt papers?

We were light on duration as we have been expecting higher government borrowings by the end of the financial year, compared to the projected figure. Bond yields have risen in the past week but a further sharp increase from here could be limited. However, the pause in rate-cuts could limit the fall in yields as well, in the near-term.

Source: Money Control