“We are excited about the potential earnings of domestic sectors such as BFSI, Cement, Infrastructure, and Capital Goods,” states Niraj Kumar, Chief Investment Officer of Future Generali India Life Insurance Company Ltd. In an interview with ETMarkets, Kumar expresses optimism about India’s economy and its investment prospects in the medium to long term. He acknowledges the current market highs, but also raises concerns about whether the market is running ahead of fundamentals.
Kumar explains that the strong performance of the Indian equity market since April 2023 can be attributed to factors such as the anticipation of a soft landing in the US, strong domestic fundamentals, and increased foreign flows. He highlights India’s macroeconomic stability, demographics, political stability, and credible institutional framework as rare commodities in today’s volatile and uncertain world.
He emphasizes the importance of measures taken in recent years, such as the implementation of the Insolvency & Bankruptcy Code, cleaning up of banks’ balance sheets, the introduction of RERA and GST, financialization through Jan Dhan, Direct Benefit Transfer, and the Production-Linked Incentive Scheme. These measures are expected to not only drive growth in the coming years but also enhance economic efficiency and formalize the unorganized sector, laying a strong foundation for long-term growth.
Despite being structurally optimistic about India’s growth story, Kumar tempers near-term expectations due to potential challenges over the next few quarters, including the lagged impact of global monetary tightening, the withdrawal of global liquidity, domestic uncertainties such as the monsoon and a heavy political calendar, and the current high valuations.
He attributes the global rally to the resilience of global demand, the anticipation of a soft landing in the US, the expectation that the interest rate hiking cycle is nearing its end, and the consequent risk-on environment. He notes that India’s equity market has outperformed many developed and emerging market counterparts, with a broad-based rally across sectors.
Kumar believes that the direction of the market will be driven by earnings growth, and he is particularly optimistic about domestic facing sectors such as BFSI, Cement, Infrastructure, and Capital Goods due to their growth prospects. However, he expresses concern about the weak Q1 results of large-cap IT companies and anticipates slower growth in the next few quarters.
Recognizing the potential for growth moderation across the developed world, Kumar suggests being underweight on sectors with high linkage to the global economy. He mentions trimming exposure in Metals, IT, and Chemicals due to their current valuations.
Kumar advises caution when approaching IPOs, emphasizing the need for selectivity and scrutiny of the business quality and longevity. He shares that their stock-picking process involves assessing the opportunity size of the business, analyzing financial statements, considering corporate governance and historical track record, and evaluating valuations.