Two themes for investing in medium to long term: Sanjay Kumar, PNB MetLife

In a chat with ET Now, Sanjay Kumar, CIO, PNB MetLife, says the consumption and public infra are the two themes where investments can yield result now.

Edited excerpts:


What do you think are the triggers for the markets at the moment?

The key factor which has been driving the market over the last few months has been liquidity. There has been a deluge of liquidity both in the domestic as well on the global front. Clearly at the current valuation, markets are trading at a premium. In fact on a two-year basis, markets are one standard deviation higher than the mean. At this level, we see some consolidation taking place. However, as far as triggers are concerned going forward, performance of corporate earnings and smooth GST implementation are two important triggers that would play out for the market in the immediate term. There are quite a few themes for the medium to long term which investors can play on.

Which are the themes the investors can play on?

The two broad themes that come to my mind are the consumption theme and the public spending, the infrastructure investment theme. On the consumption side, we see strong consumption coming in from both the rural side as well as the urban side. On the rural front, the strong focus by government to increase farm income, the public spending that is going on, that is going to provide a significant boost to consumption. On the urban front, rising disposable income, increasing aspirational levels as well as increase in income, all combine to provide a boost to urban consumption as well.

More importantly the implementation of the Seventh Pay Commission is also a very important factor. So, in overall consumption, we see a structural multiyear theme which will drive markets over the medium to long term.

The other theme that will play out is infrastructure. There has been a strong focus by the government on development infrastructure. The key areas which are being focussed are roads, railways, power transmission and housing. Within housing, affordable housing is one segment that the government is strongly focussing on. Again this infrastructure theme is a multiyear structural theme. It has a strong multiplier impact on the economy and these are the two broad themes that investors can selectively look to play with.

Where are you profit taking right now? Any pockets which you feel are looking a little ripe and richly valued right now?

Two sectors come to my mind.. One is the private banks. Private banks have been gaining market share. The businesses that they are focussing on are very profitable. These banks have good risk management system and underwriting skills. The challenge with these banks is that they have high valuations and any disappointment especially on the NPA front could lead to correction. This could be one area where selectively investors can look to book profits.

What then is the approach when it comes to the fixed income market because about a month back, there was a big debate that now you are seeing a reversal coming in, RBI is going to be in a pause mode. or a while to come in in fact even in the last policy and ever since then fixed income is not looking all that attractive as pure equity plays are?

What we have seen from the Reserve Bank of India is that a few months back, it changed its stance from accommodative to neutral. In the last monetary policy meeting, we saw that though RBI kept the repo rate at the same level, it reduced the interest rate corridor. This means that effectively it increases the reverse repo rate.

Most importantly, two things happened. One is RBI raised its inflation forecast for FY18 and had hawkish commentary. Put all these in a perspective and what it effectively implies is that time of lose monetary policy might have ended. We may not see any further rate cuts during the course of the year. In fact, I would not rule out the possibility of a rate increase towards the end of FY18.