ETMarkets Smart Talk: Modi 3.0 unlikely to be over-populist at the cost of compromising fiscal discipline: Amar Ambani

In an interview with ETMarkets, Ambani said: “I would look to buoyant sectors like realty, banking, select consumer discretionaries, telecom, and aviation for better opportunities,” Edited excerpts:

Modi 3.0 comes with new faces but the big four have retained their portfolio which is a positive sign for markets as well. What are your views.
Coalition partners will indeed drive a hard bargain and on the face of it, the ruling government faces a tight rope walk situation, especially given the contrasting reference point of a thumping majority for BJP in the prior two polls.Having said that, 240 seats is a significant number in its own right, which gives the ruling party enough steam to manage the coalition prudently and purposefully. I don’t see coalition management as a formidable challenge.

Of course, one will have to monitor the discernibly fluid situation from time to time, but things seem under control at this point.

More importantly, an unchanged Prime Minister implies seamless continuity of the reform process and a similar level of transparency and clarity from the market perspective.

Do you have further corrections in the market or have we bottomed out?
In my opinion, the election event is done and dusted, and the market won’t read too much into it, to endure drastic corrections akin to the knee jerk reactions seen on poll outcome day.

However, purely from a valuation perspective, the fact remains that there is considerable richness in Indian equities, and even in US equities.

We could hence see a correction at some point following a span of sustained rallies.

Also, if a correction happens in the US markets along the way, the Indian markets could mirror the trend.

A 10 to 20 percent correction in a bull market is not uncommon and hence shouldn’t be a cause for concern. My larger point here is that the market uptrend will sustain going forward, notwithstanding the occasional blip on the way.

What about policy reforms? Do you see a shift of reforms to welfare politics?
As mentioned earlier, reforms will continue for sure. Talking of specifics, infra spends will continue unabated; FTAs with a few key nations should materialise soon amid continued clarity on foreign policy and partners; key strategic disinvestments will be taken up; commitment to the fiscal deficit should stay put, so would PLI schemes and the ‘Make in India’ drive; RBI and the government will continue to be in sync.

You never know, happy announcements like lowering of personal income tax limits could be on the cards at some point in future, given that fiscal deficit is getting in control.

I don’t see any likelihood of the government getting over-populist at the cost of compromising its fiscal discipline.

Maybe at the end of the fourth or fifth year of the new government, we would have to reassess if they are tempted to get populist, closer to the next general elections.

Which sectors are likely to do well in the new regime? FMCG and IT stocks have picked up momentum recently. What are your views?
Beyond a doubt, corporates with good growth visibility and reasonable valuations would continue their smooth sail on a sustained basis.

In the near term, we may see some exuberance around specific narratives and propositions, but there are certain expensive themes that may come to an abrupt screeching halt.

Investors need to tread with caution in areas where valuations don’t support the claims, by any stretch of imagination.

While midcaps as an index, relative to large caps, have outperformed historical averages, their results as a basket have been pretty lukewarm in the last couple of quarters. So, one needs to be selective about midcap propositions going forward.

Among sectors, I find FMCG on the expensive side. Although there has been mildly positive commentary by some FMCG managements hinting at a rural recovery, we are yet to see hard evidence to that effect, and valuations are still relatively richer.

I would look to buoyant sectors like realty, banking, select consumer discretionaries, telecom, and aviation for better opportunities. In recent times, IT stocks also seem to be getting into the value zone. So, one can gainfully track these spaces and buy on dips.

Railways, PSUs, and PSE rose in the run-up to the election outcome. Do you see derating in some of these sectors and how should investors approach them who are already invested?
The said pack has rallied significantly for sure, and valuations in many scrips seem to be high for comfort, at least in the near term.

We would prefer cherry pick stocks rather than expecting returns from the collective. SBI, for instance, is one stock we like in the PSU category, ditto for BPCL among the oil marketing players.

FIIs were net short in the run-up to election results. How are they viewing India for long-term investments? Have you had a chance to speak to some of the FIIs?
Yes, we did have focused conversations with a few of them. I travelled to a couple of popular overseas destinations that route money to Indian markets to get a first-hand feel of what global investors are thinking.

They were of course keenly awaiting the poll outcome all this while. About valuations, what I sensed from their submission was that India appears a bit expensive at the moment compared to China.

That is the value trade they believe in for the short term. I sense they are also waiting for clarity to emerge on taxation rules and disclosure norms with regard to recent announcements and GIFT City.

Having said that, they are well and truly excited about India’s growth story, reform process and improving governance.

I am more than sure as and when they come in, we would witness a flurry of inflows that we have not seen before. The potential is way more than what the volumes till date hint at.

Is it time to reshuffle the portfolio? What is the ideal asset allocation one can look at in the 30–40-year age bracket?
Clearly, it is not advisable to stay invested in stocks with extravagant valuations or with tall claims based on elusive futuristic possibilities. It is prudent to focus on stocks with earnings visibility and reasonable valuations.

Asset allocation of course depends on a host of factors like financial goals in line with life goals, risk capacity, risk tolerance, and liquidity needs.

For the said age group, a ballpark of 70 to 75 percent in equities should fit the bill at this point in time.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)