What is your view on equities in 2010?
The market is at the upper end of the fair value range. From here on, the first significant event trigger will be the budget, which will provide a roadmap on the fiscal deficit management, which is crucial for the economy today. The other crucial trigger is the upcoming monsoon, which is going to be particularly critical, in view of the bad monsoons last year. While the bad monsoons in 2009 did not see any direct impact, the food price inflation is a significant result of the same. Having consecutive bad monsoons could push inflation further, putting stress on the market. These apart, global cues will continue to be crucial.
However, India continues to stand strong on the back of its consumption story and demographic advantages. Given that our saving rate is around 35% of GDP, we believe that this consumption story will continue ahead. Consumers also continue to be underleveraged, which is reflected in the positive consumer confidence indicators in India. One of the drivers of middle class consumer confidence has been the employment in sectors like technology that has improved significantly in the last six months also boosting the consumer sentiment. Our corporate sector has also demonstrated resilience and the 2009 boom has been successfully used by most Indian corporates (ex-aviation) to de-leverage their balance sheets. It has consequently reduced the possibility of bad debts in the banking sector. All-in-all, notwithstanding short term blips, the long term story stands well poised for growth.
Which sectors likely to out-perform and under-perform this year?
We expect 2010 to be an infrastructure theme driven year. The year 2009 belonged to consumption, while infrastructure was a laggard. Given the current scenario of inflation create, there is a significant need to augment infrastructure investment opportunity, increase capacity and thereby control inflation. We believe that given the need for investment in infrastructure to manage inflation and also to sustain growth, this segment will receive focus from the government and therefore, is expected to do well in 2010.
The telecom sector also looks relatively attractive on a long term basis. While there has been an uptrend in valuations recently, there continues to be a valuation gap in the sector; for the short term it would be difficult to predict the direction of this sector. The long term outlook for telecom stands strong due its valuation attractiveness and demographic advantage. With further possibility of technological enhancements in this sector, it surely deserves a premium with a long term view.
Do you expect mid-caps to out-perform large caps?
For most part of 2009, major index constituents under-performed the mid-cap space. Given the cyclical trend, it is difficult to expect mid-caps to continue their out-performance in 2010 since they have already witnessed significant uptrend.
What are your expectations from the upcoming Budget?
The Budget 2010 is expected to provide necessary support to infrastructure growth. In India, infrastructure continues to be a crucial bottleneck and there is need to address this to enable the economy to sustain growth. Hence, the budget is expected to provide the necessary support to help remove bottlenecks and increase execution pace.
This is also going to be a year seeking fiscal consolidation. The expectation on the budget is therefore also to provide a roadmap for fiscal management through various initiatives like taxation and divestment. The corporate sector has successfully de-leveraged and is doing well as witnessed through the earnings growth. Consumers in India have always been in comfortable shape as they were never leveraged and their confidence levels have always been higher than other countries. The only impending hurdle is of high fiscal deficit, which needs to be controlled through a combination of disinvestment and taxation.
What are your views on the power sector?
India is expected to have a demand for regulated power at affordable prices for a long time. We have been overweight across our portfolio specifically on regulated power producers on a risk adjusted basis as there was good upside opportunity in the sector and as the risks are lower. While power sector is likely to see huge growth, the current price of merchant power is too high for the consumer.
ICICI Prudential Tax Plan Fund has performed exceedingly well across categories. What factors have contributed to its success?
The ICICI Prudential Tax Plan has demonstrated its out-performance due to prudent stock picking and timely investment decisions. The mid-cap exposure in the fund helped it capture the market upside well, thereby enabling the fund to deliver superior risk-adjusted returns.
Could you elaborate on the stock picking strategies for ICICI Dynamic Fund? What are the reasons behind the scheme holding 22% corpus in cash & equivalents?
Given the current market level and the recent rally, we have taken a conservative stance in the fund in line with its mandate. The fund has the USP of being dynamic in nature, which has helped the fund out-perform during market downside and demonstrate risk-adjusted returns at other times. The stock picking strategy in the fund also mirrors the funds mandate and is therefore, aimed at creating a risk-adjusted return portfolio of stocks.
What is your advice to the retail investors in the current market scenario?
Our advice to retail investors is to follow systematic asset allocation and invest regularly. Market will continue to demonstrate volatility and only a judicious asset allocation approach will give investors the opportunity to adopt the counter-cyclical investment philosophy of investing when the market goes down and booking profits when the market goes up. Prudently following asset allocation strategy, SIP and due diligence will help investors create a strong portfolio with high risk-adjusted return potential.