“We expect Indian economic growth and corporate earnings to improve over the medium term” - Mr. Pradeep Gokhale
Interview of our senior fund manager, Pradeep Gokhale, is published in NAVIndia - Interview with Fund Managers.
Published on: Mar 3, 2016
Transcripts - “We expect Indian economic growth and corporate earnings to improve over the medium term” - Mr. Pradeep Gokhale
Interview with Fund Managers
05 May 2015 15:03
We expect Indian economic growth and corporate earnings to improve over the
Hence we have higher allocation to sectors that are likely to benefit from this
In an interview with Capital Market, Pradeep Gokhale, Senior
Fund Manager, Tata Mutual Fund said, "For equity markets the
transmission of RBI rate cuts into lending rate cuts is more
important. We feel this transmission will gather speed during
the year which will be a positive driver of earnings."
1. The equity markets are turning volatile? What will
the key driving factors for markets going ahead?
After a very strong rise in Indian equity markets since the
lows of August 2013, some increase in volatility is to be
expected. So in the near term global issues such as possibility of Greek default, some increase in
oil prices from the lows seen in January 2015, issues relating to FII taxation as also a weak
earnings season in India has led to increase in volatility. Also, India is a consensus overweight
market for FIIs. So from a three month perspective we may see higher volatility but such factors
have only a transient impact. Over the medium term, markets respond only to earnings and
2. How are the market positioned to face global clues in terms of US rate hike?
I think the experts are still debating if and when US will hike interest rates. The good part is that
with more discussions on this topic, market participants are already aware of the possibility and
it starts getting factored in valuations. Also, India today is significantly better prepared to face
the rise in US interest rates today than we were in 2013. Our current account deficit has fallen
significantly from close to 5% of GDP then to slightly higher than 1% today. The dependence of
external funding is thus much lower. So India is in much better position to face the US rate hike.
3. Which sectors you are considering attractive from investment point of view and why
and which sectors you are avoiding and why? What kind of stocks never enters your
We expect Indian economic growth and corporate earnings to improve over the medium term.
Hence we have higher allocation to sectors that are likely to benefit from this. We also feel that
the stock selection will be more critical for generating the excess returns than merely sector
allocation. Our view is that within a sector, those companies with management bandwidth and
financial strength will be able to benefit more from the improved macro fundamentals and the
improved sector prospects.
Mr. Pradeep Gokhale
Thus our key overweight sectors are
• Cement and capital goods - which will benefit from the coming capex cycle. Within capital
goods we are more positive on sectors such as logistics and transportation, defence
manufacturing, urban infrastructure and transmission and distribution sector
• Auto and auto ancillaries and select consumer discretionary stocks which will benefit due to
improved personal income growth
• Pharmaceuticals - where both the key markets US and India has good growth opportunities.
We are neutral on banking and IT sector. We remain underweight on oil and gas and metals and
mining due to weakness in global commodities. We are also underweight FMCG stocks due to
4. When do you expect the RBI to further cut rates?
We feel the trajectory of interest rates would be down for 2015. Our fixed income team expects
RBI to cut rates by 25 bps in June. But for equity markets the transmission of RBI rate cuts into
lending rate cuts is more important. We feel this transmission will gather speed during the year
which will be a positive driver of earnings.
5. What would you like to advice to the investors in the current scenario?
We are positive on the equity markets over the next three years. We expect corporate earnings
to improve and India's valuations are reasonable and at long term averages. Thus investors
should systematically invest in the equities and use any volatility in the market to increase
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