Dalal Street Voice: Money making opportunities available in domestic cyclical sectors as well as IT & pharma: Prasun Gajri of HDFC Life

Prasun Gajri, Chief Investment Officer, HDFC Life said that we expect earnings to be impacted for selective sectors like Auto, Cement, Construction, Consumer Goods and Industrial Manufacturing while benefit sectors like Oil & Gas and Metals on account of higher crude oil prices.

Prasun has been associated with HDFC Life since April 2009 and heads Investment with an AUM of Rs 1.95 lakh crore. Prior to joining HDFC Life, he was associated with Citibank N.A. and Tata AIA Life Insurance Company Limited.

See Zee Business Live TV Streaming Below:

In an interview with Zeebiz's Kshitij Anand, Gajri said that domestic cyclical sectors like Financial Services and Industrial Manufacturing and Export sectors like IT and Pharma provide good entry point from a medium to long term perspective. Edited excerpts:

Q) Bulls have taken a back seat as bears took control and have been successful in pushing benchmark indices below crucial support levels. What is your take on markets?

A) The markets have been quite resilient, but the geopolitical crisis has changed the equation. Markets were optimistic about retreating COVID headwind and strong earnings expectations.

The sell-off was driven largely by the economic sanctions put on Russia which drove crude as well as other commodity prices higher. Also, the initial hope of a short war has also faded with the conflict continuing.

We expect the equity markets to remain volatile in the near term on account of geopolitical tensions, changes in global monetary policy stance on the back of inflation risks, and elevated commodity prices.

Q) Crude oil hit the USD $140. What is the kind of impact you see on markets, the economy, and India Inc.?

A) Oil prices remaining elevated for a longer period of time will pose challenges in form of a higher current account deficit, higher inflation, and lower growth for the Indian economy.

The burden in all the likelihood will have to be shared between the government in form of lower excise duties (implying higher fiscal deficit), the oil companies in the form of subsidies and consumers.

The secondary effects will include lower growth and margins for companies as the input costs go up and fall in consumption by households driven by higher inflation.

Q) Will rising crude oil impact earnings growth in the March quarter?

A) We expect earnings to be impacted for selective sectors like Auto, Cement, Construction, Consumer Goods, and Industrial Manufacturing while benefit sectors like Oil & Gas and Metals.

We believe there will be minimal impact on sectors like Financial Services, IT, Pharma, Healthcare, and Telecom which constitutes around 54% of the BSE100 Index. However, the full impact of the rise is unlikely to be felt in the March quarter earnings.    

Q) What is the kind of impact you see on markets as well as reforms post state election results?

A) We do not see any major impact on markets or reforms post the state election and expect the government to continue with the current policies.

There has been no negative surprise in the election results. We believe the government will continue with its agenda of pushing growth through infrastructure creation and facilitation of investment in manufacturing through PLI schemes.

Q) There is no stopping of FIIs as they pull out more than Rs. 18000 cr. from the cash segment of Indian equity markets in just 3 sessions. What is the trend you foresee for FIIs amid US Fed rate hike possibility and Russia-Ukraine war?

A) The recent spike in FII selling is not surprising given the negative impact of rising oil and other commodity prices on Inflation, growth, and corporate earnings.

India’s relatively expensive valuations and highest ever premium to other EM’s valuations also contributed to FII selling. However, it is noteworthy that DII flows have remained strong absorbing FII selling.

While in the near-term outflows may continue, we believe, India will continue to attract sizeable FII inflows over the medium to long term as it remains the most attractive emerging market for FIIs.

Q) Amid Gloom and Doom are there any money-making opportunities that investors can grab?

A) We believe Domestic cyclical sectors like Financial Services and Industrial Manufacturing and Export sectors like IT and Pharma provide good entry points from a medium to long term perspective.  

Q) Given the fact that the market is down more than 10% from highs – any mistakes (1-5) that investors should avoid making as volatility increases?

A) Investors should avoid taking leverage bets in such volatile markets. Investors should also avoid timing the market as remaining invested in equities over a long period of time is more rewarding and has a better success rate than timing the market.

We would recommend investors to focus on goals and develop a staggered and systematic approach to investing in equities over a long period of time.

Q) How can investors look at asset allocation (considering he/she is in the age bracket of 30-45 years). Is it time to reduce equity in the portfolio and increase the percentage of debt?

A) In that age group we would recommend a systematic approach to invest and higher allocation to equities due to long-term horizon.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)