Current capex cycle to have reasonable medium to long-term trajectory; to benefit key manufacturing sector:LIC Mutual Fund’s Toshniwal

The recent actions of the newly formed government suggest a shift towards increased spending on rural development. 

“This includes investments in infrastructure, agriculture, and social welfare programs aimed at improving the quality of life in rural areas. Such initiatives are likely to stimulate economic activity and boost consumption in these regions,”Jaiprakash Toshniwal, Senior Equity Research Analyst & Fund Manager – Equity at LIC Mutual Fund Asset Management says in an exclusive e-mail interview with Zee Business.

Jaiprakash Toshniwal brings with him vast experience in research across sectors especially Banking & Finance. He has a total relevant experience of over 13 years. Toshniwal is CFA charter holder from CFA Institute (USA) and also holds a MS Finance from ICFAI.

Edited Excerpts:

Q1. Do you see the markets to be expensive currently and like as is seen in the recent past bluechips have led the rally, do u anticipate their support even further?

At the current level, we see market valuations slightly higher than the long-term averages. However, it's important to account for the improved sustainable earnings growth compared to the past decade. Therefore, we believe there are reasonable opportunities in certain sectors and companies. Each investment opportunity should be evaluated based on its earnings trajectory, rather than being overly focused on its characterization.

Recently, small-cap stocks have outperformed large-cap stocks. However, over the long term, returns from both segments tend to converge due to various market or economic cycles. Given the current valuation gap, we find some relative attractiveness in the large-cap segment, which could positively impact returns.

Q2.  Can investors expect a pre-budget rally ahead of the budget and what can be the ideal portfolio allocation currently?

It is challenging to predict event-based rallies, as short-term market performance is often driven by perception rather than medium- to long-term fundamentals. In the past, we have witnessed market rallies fueled by certain assumptions or expectations. However, these rallies tend to be short-lived and do not justify significant changes in portfolio allocation.

For investors, it is crucial to remain focused on the long term and avoid reacting to event-based portfolio suggestions. Historical data shows that investors who stay invested over the long term tend to build substantial wealth.

Q3. Which are the sectors you are bullish on given Modi 3.0 return? 

As a house call, we remain positive on the sectors related to manufacturing, capital expenditures (capex), and consumer goods. We believe the current capex cycle will have a reasonable medium to long-term trajectory, which should benefit the key manufacturing sector as well as related industries such as machinery, construction, and infrastructure. This cycle is driven by various factors, including government initiatives, increased private investments, and technological advancements, all of which are expected to sustain momentum over the coming years.

The recent actions of the newly formed government suggest a shift towards increased spending on rural development. This includes investments in infrastructure, agriculture, and social welfare programs aimed at improving the quality of life in rural areas. Such initiatives are likely to stimulate economic activity and boost consumption in these regions. Enhanced rural spending can lead to a ripple effect across the economy, driving demand for a wide range of products from basic necessities to consumer durables.

Moreover, the government's focus on rural areas aligns with its broader economic strategy of inclusive growth. By addressing rural needs and increasing their purchasing power, the government is laying the foundation for sustained economic growth. This strategy is expected to complement urban growth and create a balanced economic environment conducive to long-term stability.

Our positive outlook on the manufacturing, capex, and consumer sectors is underpinned by a combination of strong earnings growth, gradual increase in rural wages, and supportive government policies. We anticipate that these factors will collectively contribute to a favorable investment climate, driving growth and profitability in these key sectors.

Q4. Do investors need to reassess and reshuffle their portfolio now that the markets are hitting new highs every other day?

Investors should assess their portfolios based on their investment objectives and risk tolerance. Over the long term, we have witnessed various market events and fluctuations. However, long-term investing has consistently demonstrated the potential to create substantial wealth for investors.

By focusing on long-term goals and maintaining a disciplined investment strategy, investors can navigate short-term volatility and benefit from the compounding effects of their investments. It is important to regularly review and adjust portfolios to ensure they remain aligned with individual financial goals and risk profiles. Historical data shows that despite periodic downturns, markets have generally trended upwards over extended periods, rewarding patient and strategic investors.

For investors we would suggest to take well informed decision along with the suggestion from the professional investment advisor. 

Q5. Is LIC Mutual Fund planning any theme-based mutual funds similar to defence, manufacturing which have gained immense traction of late?

The launch of any product is based on identifying gaps within our current offerings and evaluating the investment attractiveness of the potential product. We continuously assess such opportunities to introduce products that capitalize on long-term trends and generate wealth for our investors.

Our approach involves thorough market research, understanding emerging trends, and aligning our product development with the evolving needs of our clients. By staying attuned to market dynamics and investor preferences, we aim to create innovative solutions that not only fill existing gaps but also provide substantial growth potential.

 We are committed to delivering products that offer strong value propositions and align with our long-term vision of wealth creation for our investors.