Stay disciplined, don’t be swayed by bullish pre-poll market sentiment: Nirmal Jain

In the run-up to the elections, the market sentiment will be positive. So investors can increase their allocation to equities while maintaining a balanced portfolio, says Nirmal Jain, Chairman, India Infoline in an interview with Sanket Dhanorkar.

With investor participation in equities at a record low, what is the future of this asset class in India?

The investor participation in equities is at a record low, be it local investors (retail and HNI), or DIIs (mutual funds and insurance companies), but the future of Indian equity is bright. Equity markets are linked to the expectations about GDP, macro variables, regulatory clarity and performance of other asset classes.

Real estate and gold appear to have run out of steam. India's demographics are probably superior to those of any other country in the world. The economy has a promising future, which will be reflected in the equity market soon. After six difficult years, I expect a long bull run, which is widespread, has breadth and depth, and one that will bring back more serious and long-term investors to equities.

How does the banking business fit into your operations?

Are you prepared to meet the RBI's stringent compliance requirements? We are fully prepared to meet the RBI's stringent requirements and have not sought any exceptions. A bank licence fits in very well with our group operations. The primary reason for new bank licences has been financial inclusion.

This is not an obligation, which has to be subsidised by the profitability of the core business, but is a core business itself and, therefore, has to be viable and profitable on its own. We feel confident of making a significant difference with our two decades of experience in financial inclusion, learning, innovation and retail reach of close to 4,000 business locations across 900 small cities and towns. We are already close to tier V and VI areas, where the RBI would like banking to expand.

After five years, the benchmark indices are at the same levels. Do you expect the markets to come out of the slumber once the elections are out of the way?

For almost six years (since the start of 2008), benchmark indices have been at similar levels. Putting money in debt instruments would have nearly doubled your investment. In the indices, there is extreme polarisation, with nearly 15 stocks that are over-owned by FIIs and whose prices have more than doubled in the past six years.

As for the remaining, some are 40-60% lower than their peaks. The market works on sentiment and the state election results have provided hope of stability at the Centre. In the run-up to the elections, the undertone will be positive and bullish. The impact of the rally will start spreading to mid-caps and small-caps and participation of individual investors, as well as HNIs, will also increase.

Which sectors in the economy are likely to perform well from now onwards?

Over the long term, pharma, IT and FMCG should perform well and face lesser volatility. However, as the economy revives, automobiles, capital goods and select infrastructure stocks will also do well. In infrastructure, one needs to avoid companies that are over-leveraged and have fallen into a debt trap in the past three years.

Is the bottoming out of the Indian economy under way or is there more pain left?

Broadly, the Indian economy is bottoming out. Most of the macro parameters like GDP growth seem to have troughed. The softening of crude oil prices would be a relief for the current account deficit (CAD) as well as fiscal deficit.

A widespread monsoon will result in a significantly higher agriculture growth and have a cascading impact on other industries and services as well. There is a consensus that stalled projects have to be cleared and the government has to assert itself and move ahead. The recovery process may take a while, but it will happen.

For how long are interest rates likely to remain at elevated levels?