Indian markets will recover on steady FII inflows: Sashi Krishnan, Birla Sun Life

In an interview with ET now, Sashi Krishnan, Chief Investment Officer, Birla Sun Life, speaks about the markets. Excerpts:


ET Now: At these levels, do you think the markets are pricing in all the negatives and do you think Greece’s disorderly exit from the EU at these levels is priced in?

Sashi Krishnan: There is a lot of negativism that is being built into the market. This is not to say that the situation in Europe is not alarming and the US is not deteriorating. Both are true. Europe is going through a fair amount of crisis, especially with the so-called disorderly exit of Greece expected or being factored into where the markets are. The US is also reporting a lot of mixed data in terms of the broad economy, but for investors who invest into the Indian market this is clearly an opportunity because all of this is reflecting in valuations of Indian stocks and Indian stocks are now available at very-very attractive valuations.

ET Now: Is the current panic a good opportunity to buy into equities as well?

Sashi Krishnan: Yes. The markets are primarily driven by two things. One is earnings expectation and the second is global flows. At this point of time obviously there is a risk off trade and global flows are a little slow, but once global flows start coming back into the Indian markets, the markets will start recovering.

ET Now: When the markets will hit a bottom, which sectors will revive the fastest and which sectors will lead the rally?

Sashi Krishnan: At Birla Sun Life we are reasonably optimistic from the medium to long term. We have exposures to the Indian consumption story. The Indian consumption story is clearly something that has not given way because private consumption is just keeping its head above water. We are also exposed to many of the infrastructure financing companies like the power financing and some of the private banks because we believe that they are proxies for the growth story in India. We do believe that the medium to long-term equity stories are very good and for young retail policyholders, who intent to take long-term policies, Indian equity at this point of time offer a very-very good opportunity.

ET Now: What is the best way to invest in consumption theme -- would it be via banks, autos or FMCG?

Sashi Krishnan: We play these two ways whereas we are also invested into direct consumption stories. We also are invested into the mortgage companies.

ET Now: You have a fairly large and a decent exposure to IT. So what makes you bullish on IT -- currency, environment or valuations?

Sashi Krishnan: Clearly the currency movement is on the upside, but over and above the currency movement, I also think that IT spends globally are not going to fall and this would be a great advantage to most of the Indian IT companies. The Indian IT companies are going up the value chain, they are able to get larger orders and they are doing all the right things. Till very recently may be these IT companies were fully valued and you may have thought that they were expensive, but at these valuations there is a great opportunity.

ET Now: What about autos because they have been outperforming but given the April sales data, is the spring time over for the auto industry as such?

Sashi Krishnan: It is the demographics and the domestic consumption story. You will over the next couple of years see a larger number of people buying two wheelers and passenger cars and there will be a clear opportunity and there is an addressable market for all these people over the next couple of years. That is one. Two, if we do think that the commodity cycle will ease a little bit and interest rates will also come down may be towards the end of the year, those will also be positive for the automobile sector.

ET Now: If I could crudely divide the auto space into three now, there are three types of auto companies in India -- Tata Motors exposed to global growth, passenger car companies which are exposed to urban growth or semi-urban growth and then two wheelers which are exposed to rural growth. Which part of the auto business or which sector within the auto business you are bullish on?

Sashi Krishnan: We would be invested across all the three stories - the rural demand sector through the two wheelers, the passenger car segment through the urban demand and the rising aspirations of the Indians and the commercial vehicle sector which is a proxy in my opinion for the economic growth itself in this country. So I think that all three of them would be good enough places to be in given the fact that there will the cycles where the prices will go up and down.

ET Now: How would you play the capital goods in metal cycle currently?

Sashi Krishnan: We are underweight on both capital goods and metals. We believe that with China slowing down and the commodity cycle slowing down, there will be some sort of a pressure on metals and in terms of the capital good sector whereas from a long-term India story, capital goods will be something that will perform. At this point of time the problem is that the investment cycle has slowed down so much that the capital good sector is looking a little challenged and so we are marginally underweight in both of these.

ET Now: When do you really see the tide turning for L&T or for BHEL or for that matter any of the machinery or capital good companies?

Sashi Krishnan: We need to see something more being done in terms of the investment cycle. We need to see the investment rate going up because we have seen both the savings rate and the investment rate fall. We need to see signs that the investment rate and the savings rate have reversed just their trend and are going up. More importantly is the fact that we need to see confidence returning because it is only when the confidence returns that people start investing into new projects and once we see that, that would be the place to be in.