Mumbai: Domestic markets could trend sideways but with an upside bias, noting robust but slightly moderated earnings growth for the upcoming fiscal year compared to FY24. And the only headwinds would likely emanate from global factors, said DP Singh, deputy managing director and joint chief executive of SBI Mutual Fund, India’s largest fund house with assets under management worth ₹8.51 trillion, in a freewheeling chat with Mint’s Ram Sahgal.
Edited excerpts:
How do you see markets placed currently?
As of now, the market is supported by strong fundamental, macroeconomic, and supply-demand factors, with any potential headwinds likely stemming from global issues, be it geopolitical or macroeconomic shifts, such as a slowdown in the US.
From an earnings perspective, we will see decent growth in fiscal year 2024-25 (FY25), but the pace will be slow when compared FY24, which was a normal year post the pandemic shock . So it will be growth on a high base, but not as spectacular.
What does it mean for market movement, especially ahead of the interim Budget and the national elections?
The market is expected to move sideways, showing an upward bias amid volatility. The interim Budget might inject some positivity, especially with potential easing of personal income tax thresholds to boost consumption, and a capex push from the full Budget in July, which could have a multiplier effect on the economy.
However, we should anticipate some volatility as we approach the elections.
What will be the approach to investing in light of the aforesaid?
It’s going to be a period of selective stock picking across large-caps, mid-caps, and small-caps, including banking, IT, and PSUs. The focus will be on adapting the portfolio weightings of major players based on their earnings and overall performance.
In banking for example, like what we saw with HDFC Bank?
I will not get into specific names but when NIMs compress in a highly competitive environment, to get them up to speed is a challenge. There are challenges faced by others as well who are in a cyclical business where weights might have to be tweaked in light of the earnings and overall performance . That would obviously reflect in the way a fund manager takes a call on deploying funds .
What makes you so sanguine on the PSU space?
The PSU sector appears promising due to a massive capex and ‘Make in India’ push, particularly in sectors like transport, railways, and defence. Public-sector banks are now perceived as less risky due to professional management and sound lending decisions. Additionally, PSUs are attractively valued compared to their peers in indices like the Nifty Smallcap 250 and the Nifty Midcap 150.
Will IT see more inflows from domestic funds?
It’s a challenging sector, as many IT companies are export-oriented, and their performance depends on external factors. Therefore, thorough stock picking is essential in this sector as well.
What are the odds of an interest rate cut, given the tight systemic liquidity?
I believe interest rate cuts are off the table for at least the next two quarters. However, the Reserve Bank of India has various tools to increase system liquidity without resorting to rate cuts, which could benefit the banking sector.
Will inflows continue at their current robust rate?
Yes, given the favourable conditions I mentioned earlier, inflows should remain strong. This includes the effects of capex pushes, tax adjustments, moderating inflation, and efficient tax collection. Inflows from foreign portfolio investors (FPI) should also remain steady, barring any unforeseen geopolitical or macroeconomic events.
In terms of debt, will FPI flows in the coming fiscal year surpass their equity flows?
It’s difficult to compare directly, as participants in each market are different. However, I anticipate debt inflows to be significant, especially with India’s inclusion in the JP Morgan Bond index, potentially mirroring the inflows seen in FY15 at ₹1.66 trillion.