Mr. Aneesh Srivastava, Chief Investment Officer (CIO), IDBI Federal Life Insurance, is responsible for the investment of the overall corpus of IDBI Federal Life Insurance Co. Ltd. He has over 15 years of fund management experience. Prior to joining IDBI Federal Life Insurance, he was heading a London Stock Exchange listed India-dedicated European Fund. During his tenure, the fund delivered excellent returns. Prior to this, Aneesh was heading Equity Investments of Bajaj Allianz Life Insurance Co. Funds of Bajaj Allianz, during his time, outperformed the markets and consistently gave top quartile returns. During his tenure, the corpus grew from Rs 400 Crore to Rs 3000 Crore. Aneesh also has experience in the investment banking sector besides setting up and actively managing corporate equity and derivative desks. Aneesh is an MBA from Lucknow University and a rank holder CFA from ICFAI, Hyderabad.
IDBI Federal Life Insurance Co. Ltd is a joint-venture of IDBI Bank, India’s premier development and commercial bank, Federal Bank, one of India’s leading private sector banks and Ageas, a multinational insurance giant based out of Europe. In this venture, IDBI Bank owns 48% equity while Federal Bank and Ageas own 26% equity each. IDBI Federal endeavors to deliver products that provide value and convenience to the customer. Through a continuous process of innovation in product and service delivery, it intends to deliver world-class wealth management, protection and retirement solutions to Indian customers. Having started in March 2008, in just five months of inception, IDBI Federal became one of the fastest growing new insurance companies to garner Rs 100 Crore in premiums. The company offers its services through a vast nationwide network across the branches of IDBI Bank and Federal Bank in addition to a sizeable network of advisors and partners. As on November 30th, 2011, IDBI Federal has issued over 3.35 lakh policies with over Rs 18783 Crore in Sum Assured.
In an exclusive interaction with Hemant P. Maradia of IIFL, Mr. Srivastava says: “We still see risks of high inflation unless it moderates and remains below 6-7% post March’12.”
How would you react to RBI finally taking a pause?
We expected the RBI to indicate that it was likely to take a pause in the monetary tightening, two policy meetings earlier. RBI should have acted much earlier as the GDP growth has been slowing sharply over the last fiscal year. However, the central bank finally announced its intent to halt rate hikes only in its last meeting. Currently, it is still in a ‘pause’ mode; the RBI has not started cutting rates because inflation remains elevated & real interest rates are zero or slightly negative.
The RBI will not consider reversing its series of rate hikes before its January 24 meeting. Either ways, benefits of any rate cuts to the struggling India Inc. will take time to materialize. The investment cycle has been hit, partly due to the rate hikes and partly owing to policy inertia.
What do you make of the improvement in the G-Sec market?
The G-Sec market has definitely shown some improvement. We may see negative food inflation in the coming days. But, one has to see whether the food inflation remains benign post March-April’12. We still see risks of high inflation unless it moderates and remains below 6-7% post March’12.
Crude oil prices haven’t corrected materially. On the other hand, the Rupee has depreciated substantially, which worsens the inflation situation. Also, the Government doesn’t allow full pass-through of international crude prices. At some point though, the Centre has to be bold enough to decontrol diesel prices or admit that the fiscal deficit cannot be contained at 5.6% of GDP.
Another cause for concern is that if the proposed Food Security bill goes through, the Centre’s food subsidy bill will rise by Rs 400bn annually, or ~0.4% of GDP. That will only aggravate the fiscal deficit situation.
The GDP growth will remain moderate in FY13 as well. The first half of FY13 will be difficult as the ongoing economic problems would take time to subside. It’s going to be a challenge for the Government to be able to curtail its expenditure next year owing to all these factors. One would also have to wait and watch on how much the Government would be willing to move on reforms before the General Elections in May 2014.
Do you expect the Centre to push reforms post state elections?
Certain reforms like FDI in retail should have gone through by now as it didn’t require an approval from the Parliament. Considering current political equations, it would not be easy for the Government to carry forward major reforms. Hence substantial changes do not seem possible in the near future.
We understand that the fiscal deficit for FY13 may not improve compared to FY12. Also, there would be issues such as disinvestments. The Union Budget may turn out to be a populist one, if the outcome of the Uttar Pradesh election is not favourable for the Congress.
If the Lokpal Bill and other bills aimed at improving accountability and transparency in public places are implemented, some of the bureaucrats will stop taking any meaningful and bold decisions with the fear of being questioned on their intentions.
Although, we can look forward to the subsidies coming down if it is given to the targeted population with the help of the UID (Unique Identification) project which is already in progress.
Is the Indian market near bottom?
The October-December quarter as well as next two quarters of CY12 could see difficult times before emerging to stability and growth later.
Likewise overseas remittances could help boost the external balance. In addition, there is hope once the risk appetite improves and capital flows resume into the Indian markets helping it to bridge current account deficit.
What are your views on the overseas markets?
European markets are currently struggling and one should cautiously watch over the eurozone for the foreseeable future. Their banks are facing dire conditions and need more capital to stay afloat. Since they cannot sell anything in Europe, they will look at disposing off assets in the emerging markets including India.
In the US, economic numbers have been fairly resilient but one has to see whether this trend is sustainable. One must bear in mind, that the US won’t be insulated if the euro debt crisis deepens further.
Global risk appetite can improve if some meaningful solution to the eurozone problems is put in place by their leaders. That may lead to some bounce in the markets. Comparatively, valuations in the Indian stocks are attractive.
Do you see the RBI cutting CRR on January 24?
The RBI would not be compelled to cut CRR because it believes that there is no liquidity crunch. Banks are sitting on SLR of 29%, excess of which could be sold to raise money when required. The RBI has offered them a window where the banks can take SLR as low as 24%.
What is your response to the Moody’s latest review on India?
Moody’s says that a material decline in fiscal deficit and government debt ratios, as well as in their vulnerability to growth and political cycles would improve India's credit metrics relative to peers. The big question is whether there is any scope for improvement on this front?
Markets may not move much till the state elections are over and the Union Budget is out. The eurozone situation needs to improve a little. There is huge risk aversion right now. Although a 10-15% rally is not ruled out but it won’t be sustainable in the given scenario. At the same time, the downside isn’t too harsh given the reasonable valuation of Indian equities.
What about FII flows? Will they improve in 2012?
FII flows could improve this year but much will hinge on how the Rupee behaves. Because they (FIIs) have to look at both - appreciation in stock prices as well as the currency movement.
Defensive sectors may not perform as well as last year because valuations are rich. From the medium-term perspective, we see some recovery happening in the banking space.
What is your call on markets right now? Are you investing?
As incremental news comes in, one has to be a little more careful. Deployment of money immediately is ruled out. One needs a lot more confidence to go out there and start buying stocks. Fixed income returns would be equally attractive compared to equities. Hence, waiting for some good news before buying equities is a desirable option.
Do you see value in commodities like gold?
We see more pain in commodities. Gold is not a productive asset by nature. Historically, it has rallied only because of risk aversion.
What explains the resilient crude prices?
Firstly, the cost of Exploration and Production (E&P) has shot up. Secondly, most of the crude oil & gas resources are available in deep sea hence cost of exploration has gone up substantially.
Also, with turbulent times in the Middle-East countries, huge social spending is funded from crude oil earnings, increasing overall prices of crude.