‘India will remain a favoured investment destination’

MIHIR VORA, senior director & chief investment officer, Max Life Insurance, talks to Puneet Wadhwa on the road ahead for the markets in the backdrop of US Federal Reserve’s (US Fed’s) liquidity tapering plan. Edited excerpts:

Have the markets fully discounted the possibility of a sooner-thanexpected taper by the US Fed?

Markets have probably discounted a gradual tapering by the US Fed. Recently, small-caps and commodities corrected more than largecaps. However, keeping the shortterm reactions aside, the impact of any taper really depends on the circumstances under which the US Fed starts tapering. If it is due to sustained growth, then it will not matter, except for a few days of kneejerk reaction. However, if it is due to persistent inflation, then it can lead to weaker sentiment and “risk-off ’ trades, which can lead to foreign investors selling emerging market equities and bonds.

Will India continue to be on

investors’ radar once the taper begins?

India will continue to be a favoured investment destination. Like we have seen earlier – in the last 20 years – there have probably been only two years when foreign investors were sellers; in all the other years, they have been buyers.

What return can one expect from the Indian markets till March 2022?

The upside potential in large-caps is probably in single-digits. As far as small- and mid-caps are concerned, valuations are stretched after the super run of the past 12 months and for the first time in over a decade, the mid-cap index’s valuation is at a premium to largecaps. So, this is new territory and there is certainly overvaluation in many pockets. While there will always be sub-segment and sectors for stock picking, which will give good returns, at the mid and smallcap index level the performance may lag large-caps hereon.

What’s your assessment of the primary market activity?

The retail frenzy in the primary and secondary markets remains high. The euphoria is reflected in all parts of the market, including cash equities trading, derivatives trading and the IPO market. The ‘grey’ market premiums also play a role in this — higher the premium, more the excitement of the retail investors for initial public offerings (IPOS). It really doesn’t matter that investors who get allotted shares sell their holdings on listing day, because a new set of investors are entering — this explains the continued rise in stock prices even after the first day of listing. This cycle will only break if a few high-profile issues ‘bomb’, i.e., list at a discount.

Is India Inc completely out of the woods as regards demand destruction caused by Covid-19?

It is too early to say that. There seems to be a K-shaped recovery. Domestic-facing sectors and companies are yet to see a full recovery. Examples of the winning segments are information technology (IT), pharma, commodities and metals, specialty chemicals, textiles, gems and jewellery, large banks etc. Sectors like construction that benefit from government spending have also done well. Domestic sectors like auto, consumers, small banks, and NBFCS still face challenges in demand and margins.

The expectation is that domestic demand will get back on track in the second half of the financial year, beginning with the current festive season. So, the next few weeks will be crucial.

Is there enough appetite among investors for the government’s ~6trillion asset monetisation plan?

Yes, a lot of this pipeline is in the infrastructure space and these are likely to offer good yields. Given the positive experience that investors have had with REITS and Invits so far, retail and institutional investor appetite should be good. Moreover, foreign investors will also be interested because of extremely low interest rates in the developed world. So, if we play it smartly, money and investor appetite should not be an issue.