Tata AIA Life Insurance chief investment officer Harshad Patil expects the Reserve Bank of India’s to be on a long pause and says it will be premature to make a prediction on rate cut towards the end of this fiscal “as there are still many moving parts” in the inflation projections in the medium term.
But one thing Patil, who has over 20 years of investment experience, is sure of is India’s economic growth. The robust recovery in the GDP augers well for the small-cap universe, he tells Moneycontrol, advising stock-specific approach over a broad call on a sector. Edited excerpts of an interview:
Do you think the market has started pricing in a possible repo rate cut towards the end FY24? Do you expect the Reserve Bank of India (RBI) to announce its first rate cut in Q4FY24?
The fixed-income market remains supported by the expectation that the CPI inflation might stay within the RBIs threshold in the next few months on a normal monsoon. While the possibility of any further repo rate hike from the RBI has significantly decreased, we expect the MPC of the RBI to remain on a long pause, especially if the inflation trajectory is in line with its projections.
We believe it would be premature to make a definitive prediction regarding any rate cut towards the end of this fiscal, as there are still many moving parts in the inflation projections in the medium term.
Can CPI inflation drop to 2 percent in the US later in the calendar year 2023?
CPI inflation in the US has been trending down over recent months. That said, it has decelerated from multi-decadal highs and remains well above the threshold levels of the US Federal Reserve (Fed). While we expect inflation to continue trending lower in H2 CY 2023 as well, core PCE inflation, the preferred inflation metric of the Fed, is expected to remain above the 2 percent mark even in CY 2024.
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Do you think the money flow will continue into emerging markets?
We believe that many emerging markets will continue to attract flows. Indian markets will benefit from these flows, as India's macro fundamentals remain in a sweet spot with robust growth, benign inflation and strong external metrics.
One sector on which you are bullish?
We believe in a bottom-up stock-picking approach and would look at the fundamentals of individual stocks at current levels. Hence, we do not look at sectors on a standalone basis before taking investment decisions.
Are you increasing exposure to the technology space, especially after Q1FY24 earnings and commentaries?
Given the recent earnings and commentary, we have a neutral view of the technology space. We look at company performance rather than taking a broad call on the sector.
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What is your strategy behind the launch of the Small Cap Discovery Fund?
Over the years, we have launched a range of funds with various asset allocation paradigms to match the risk appetite of our esteemed policyholders. By launching the small-cap fund, we aim to provide another avenue for an investor with a high-risk appetite, as an investment vehicle to compound returns in the long term.
We believe that the small-cap space offers ample scope to unearth relatively less-researched high-quality companies which are available at reasonable valuations. Hence, a small-cap fund offers a smart way of owning these quality businesses when they are small and seeing them become the mid and large-cap companies of the future. It offers the potential to grow investors' wealth by investing in a well-diversified portfolio of stocks across sectors.
Usually, smallcaps, as a space, tend to be more volatile than largecaps. To mitigate risk, we urge investors with a higher risk appetite to invest for the long term in small-cap stocks, say five to 10 years. Also, it is important to average out the volatility by paying the premiums in a timely manner on a regular basis and staying invested in the volatile corrective phases of the market.
That said, the Indian economy is on the cusp of multi-year growth, which will present immense value-creation opportunities in the equity markets. India has been the fastest-growing top 10 economy in the world in FY 22 and FY 23. It is likely to remain so in FY 24 as well. We believe that such a robust economic recovery in the GDP augers well for the performance of the small-cap universe.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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