Next 3-6 months will be a challenging time for India: Sampath Reddy, CIO, Bajaj Allianz Life Insurance

Sampath Reddy, CIO, Bajaj Allianz Life Insurance in a chat with ET Now gives his views on markets today

ET Now: Globally, the growth scare is back. None of the Q4 earnings have been above estimates. Given the way global liquidity has moved in last 10-15 days, do you think that in the near term Indian markets could correct further?

Sampath Reddy: I agree. Global growth concerns are coming back and yields on European bonds are rising again.

Spanish government bond yields are pretty much close to all-time highs. So, liquidity concerns are coming back. The LTROs that happened December and February have helped Jan-Feb-March months for us in the sense that a good amount of liquidity was injected. So, about $9 billion came in those first three months of the calendar year predominantly led by LTRO and other liquidity actions by central bankers.


But after that, there has been a significant slowdown in terms of FII flows and GAAR is also adding to the confusion. So FII flows will continue to be weak not only due to global liquidity but also due to local issues.

Most countries are either suffering from tight liquidity or poor growth. That will certainly have an impact on the Indian markets as well. The next three to six months are really going to be challenging for India. The markets will see a decent amount of correction and good opportunity for investors in the Indian stock market.

ET Now: How have you read on the news out on Infosys? Now that the company has come under the scanner of the US home loan security as well, the stock has taken a huge knock of about 4%. How damaging could this be in the medium to long term?

Sampath Reddy: Infosys has been doing business with US companies for so many years successfully. I am sure they will be able to sort out this particular issue very soon.

But that growth itself has come down significantly is a cause of concern to IT companies; a 10% to 12% volume growth is going to be the norm for the next two to three years. One positive thing for IT companies or for Infosys is that in the next two to three years, currency could be a good driver of growth in earnings for these companies.

In the last seven to eight years, the currency effect on most IT companies’ earnings has been pretty much nil. Broadly, the rupee was in the 48-49 range. Since then, there has not been much of a depreciation in our currency. Going forward, the rupee could depreciate a little bit faster than what it has done in the last seven or eight years. This will drive the earnings growth for IT companies. From a three- to five-year perspective, IT companies will have about 10% to 12% of volume growth.

The currency effect will add another 5% to earnings growth. So, these companies should be able to do 15% of earnings growth in the next three to four years. From that perspective, Infosys is also looking good at these levels.

ET Now: So at the current juncture, are you sitting on cash or are you fully invested? If you have been fully invested in last three months, have you been in a buy or a sell mode?

Sampath Reddy: In the last one year, we have had around 27%-28% cash level when the index was closer to the 20,000 levels. Subsequently, we brought down the level, and right now we are around 12% to 13%.

At any given point of time, generally, we are maintain at least a 10% cash level. So, from the perspective of our historical average, we are pretty much fully invested.

We did have a good amount of investments done in the month of December. But, in the last couple of months, we were pretty much away from the market and were neither a net buyer nor a net seller. In next three to six months, we will get a good opportunity to deploy our surplus cash as well. So we look to do that in the next two to three months.

ET Now: What about defensives, in particular the entire pharma pack?

Sampath Reddy: Last financial year, we were big on FMCG and pharmaceutical names. Given that they have already done very well in relation to other sectors, we do not have a big call on defensives as yet.

We have not cut down our positions, but our incremental purchases would not be in the defensives. Overall, our relative weighting of these two sectors will only come down in three to six months. These sectors have done very well and have been overweight in our portfolios.

So, we may bring them closer to the market levels as we move into the financial year fully. I would think our incremental purchases would be more on the manufacturing and cyclical sectors.