‘Market volatility may continue'

Aarati Krishnan | Updated on March 19, 2011 Published on March 19, 2011

With insurance assets, a fund manager can take calls and wait for them to play out. This helps in outperformance over the long term

As Chief Investment Officer and Director, Aviva India, Jyoti Vaswani has made a successful transition from being a money manager for a mutual fund to one for an insurance company. Has she experienced any differences? She shares her views in a conversation with Business Line.

You have been a fund manager with a mutual fund as well as an insurance company. Do you find insurance assets much easier to manage?

As the insurance industry tends to see steady net inflows, there isn't a frequent need to raise cash. Therefore, you end up churning the portfolio only if you need to do so, based on the fundamentals of your holdings or if you need to rebalance your assets. You can also make the best of buying and selling opportunities when you manage assets for an insurance company.

Second, ideally you should be buying when the stock market falls and selling when it is at very high levels. Whereas, fund flow patterns from retail investors in a mutual fund, may not always conform to this pattern. Inflows may dry up when markets fall and valuations really look attractive to buy! Third, with insurance assets, a fund manager is able to take sectoral and security calls and wait for them to play out. I can, for instance, select infrastructure stocks today because their valuations look very attractive. This helps in outperformance over the long term.

Are market valuations today reasonable enough for investors to buy?

I would think so. The Sensex is trading at a one-year forward multiple of about 15 and the earnings are expected to grow at 19-20 per cent as per street expectations. This, in our opinion, has the potential to be downgraded to around 15-17 per cent.

Having said that, the recent fall in markets is on account of global and not India-specific factors. There is a re-allocation of money happening due to other developed economies looking up. However, participation of domestic institutions in the markets today is limited as both the insurance and mutual fund industry have seen significant regulatory changes and are adapting to the same. Hence, FII flows are driving market direction. We received $29 billion in FII inflows in 2010. This kind of flow may not be replicated this year. However, volatility in the markets can continue for some more time. Investors can invest in equity but should accumulate in phases (systematic investment) rather than invest at one go.

What's your view on consumption related stocks like FMCG, auto and durables which have led the 2009-10 rally?

On FMCGs we have a neutral view because we believe valuations are quite high and that strong inflation does pose a challenge to growth for these companies. Having said that, we are positive on select FMCG companies that have the pricing power. Durables, on the other hand, are already seeing strong volume growth. They may be able to pass on price increases in inputs to consumers. This sector could be an outperformer. On automobiles, the view is again cautious because the sector are quite rate-sensitive and is impacted by rising input costs as well. While volume growth could continue in the mid-teens, the margins could be under pressure due to high input prices.

How will the spiralling crude oil scenario play out for Indian stocks? Which sectors would you avoid or buy due to this development?

As of now, the current spike in crude oil is driven mainly by sentiment and not by changes to the demand-supply balance. It is caused by political turmoil in the Middle East. If the agitation sustains and spreads, this may impact oil fundamentals. For India, certainly if prices hold at these levels, it will be a challenge to manage fiscal deficit and growth. As oil tends to feed into inflation, we are cautious on interest rate sensitives as there could be further monetary action to curb inflation. Obviously one would also avoid oil marketing companies until there is clarity on the subsidy transfer.

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