"Indian markets are indicating that they are in an expensive zone," says Sanjay Bembalkar of Union Asset Management

"Our view on Indian markets is positive, however, we are cautious of any developments that may hamper liquidity availability in the markets. Such events are likely to be external in nature from an economic perspective," says Sanjay Bembalkar, Co-Head – Equity at Union Asset Management Company Private in an exclusive interaction with Zee Business' Sirali Gupta.

With a professional career of more than 15 years, Sanjay Bembalkar is the Co-Head of Equity at Union Asset Management Company. Bembalkar is a CFA from CFA Institute, USA, a Chartered Accountant from the Institute of Chartered Accountants of India (ICAI), and an M.Sc. (Accounting and Finance) from the London School of Economics.

Edited excerpts:

Sebi has proposed mandatory disclosure of risk-adjusted returns alongside historical returns. Will this impact investor behaviour and the decision-making of AMCs?

The mutual fund industry along with distributor partners has done a commendable job in making mutual funds mainstream in investment decision-making through transparency. Indian regulators have been proactive and have taken steps like the categorisation of schemes earlier.  Investors may be better equipped to make decisions if further data on risk-adjusted returns is available as various schemes may have different risks embedded into them. At present, during our discussions, we understand investors are considering rolling returns analysis, various ratios, and further data on risk-adjusted returns would augment investor’s decision-making from a risk perspective as well.

What are your current views on the Indian stock market, particularly growth potential?

Indian stock markets have delivered above-average and broad-based performance in the past year. We look at Indian markets from a fair value perspective and our internal Union Fair Value Spectrum has now swung towards a modest zone which indicates the expensiveness of the market. For the first time since Nov-2021 now Indian markets are indicating that they are in an expensive zone.

We consider that India is one of the fastest-growing major economies and we are at the start of a capex cycle revival which provides comfort in earnings growth. Equity markets are also experiencing a phenomenal influx of liquidity both from domestic and foreign investors which seems to be providing comfort on the liquidity front.

Our view on Indian markets hence is positive, however, we are cautious of any developments that may hamper liquidity availability in the markets. Such events are likely to be external in nature from an economic perspective. We recommend investors focus on their asset allocation and invest in a staggered manner over the next six months. We believe schemes, where large-cap allocation is heavy, are better placed from a risk-reward perspective.

Do you expect a sectoral churn on Dalal Street anytime around the July Budget?

Post-election outcome, we have seen a fair amount of sector rotation in the markets. In the past two terms of this government, it has focused on the infrastructure side of the economy. Foundations for growth were laid through various actions be it from a regulatory perspective, from an incentives perspective, or an infrastructure development perspective. These actions are having a multiplicative impact on the economy. Due to policy continuity, we are expecting that these reforms will be continued and strengthened over time during this tenure of the government. However, in hindsight, certain parts of the economy viz. rural and urban consumers were not the immediate focus during this time. These sections of the economy need to have decent growth for the overall economy to deliver growth.

This government has also focused on fiscal prudence which has led to a stable currency and predictability of growth momentum. If the government decides to change direction more towards the consumption economy and short-term incentivising for consumers, I am sure, the street would react to these changes in the direction of the economy.

What do you expect from the Union Budget? Any policies that could impact the mutual funds' space?

In the upcoming budget, the government may choose to focus:

>> Past two terms, the government focused on infrastructure creation in roads and railways. Gati Shakti initiatives have another area of waterways to improve the efficiency of transportation in the country.

>> The textile sector is another sector where large contributions can be channelised from an economic perspective and this sector is yearning for reforms and incentives.

>> Electronic goods have started contributing to exports. As a country, India has a long road to go from an electronics manufacturing perspective. Like in the Auto sector, a full supply chain can develop in the country and have a significant positive impact. Reform momentum needs to continue in the Electronics Manufacturing space.

How should one play the rural economy theme in India given the promising above-average monsoon forecasts by the IMD?

In the past year, we have seen stress in rural consumers which is percolating in certain discretionary consumption sectors. We are focusing on certain FMCG and auto companies that may be beneficiary as rural consumer’s economic strength returns. However, the point to be noted is during FY25, the impact of the telecom price hike is expected to be absorbed by these consumers over and above the inflationary impact which has to be accounted for. 

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