Poonam Tandon, Chief Investment Officer at IndiaFirst Life Insurance Company, who has over 26 years of experience in the financial services sector, expects festive push, pent-up demand, good monsoon, improving rural sentiment and improving exports to support growth in the coming months.
However, key concerns of higher energy prices, ongoing coal crisis, as well as supply chain bottlenecks, which could hamper the growth momentum in the near term, remain, she feels.
Further she expects core inflation to remain elevated due to higher crude oil prices though she expects food inflation to be benign in the coming months due to a conducive base and higher output on account of a good monsoon.
Edited excerpts:
Q: The market has rallied around 50 percent from Dussehra 2020 to now. Do you expect a similar kind of return by Dussehra 2022?
We continue to be positive on the markets. Various government measures – PLI (production linked incentive) schemes, asset monetization plan, infrastructure thrust and monetary policy support - will continue to aid the economic recovery. This, combined with increased pace of vaccination, strong corporate balance sheets, corporate tax reduction announced earlier, and improving demand conditions will drive earnings growth.
Having said that, we could see some consolidation or corrections on the way. We are adopting a stock selective approach and focusing on companies with strong fundamentals and having operating and financial leverage.
Q: CPI inflation, as expected, fell further, and remained below the threshold level of 6 percent in September 2021 and August IIP grew 11.9 percent on a low base. Do you expect inflation to fall further in October and IIP growth to continue in the coming months?
CPI inflation further saw a third month of decline to 4.4 percent in September. As expected, the dip in inflation was due to base effects mainly in the food inflation. However, core inflation continues to remain sticky. While we expect food inflation to remain benign in the coming months due to a conducive base and higher output on account of a good monsoon, we expect core inflation to remain elevated due to higher crude oil prices.
On the other hand, we expect the pick up in the economic activity to continue, however, supply-side disruptions and power crisis could impact the momentum in the near term.
Q: Do you feel the inflation worries due to the rising oil prices, higher US bond yields on expectations of the beginning of US Fed tapering in November 2021 could spoil the party?
While US Federal Reserve has indicated a tapering move starting from this year-end and RBI also indicated normalization of measures announced during the pandemic, we do expect surplus liquidity to reduce due to the Variable Reverse Repo Rate auctions by the RBI.
In addition, the RBI has also stopped the G-SAP (bond-buying support) which means that bond yields are expected to rise in due course while equity markets historically have performed well in the initial period of rising yield scenario.
Q: SIP inflows crossed Rs 10,000 crore for the first time in a month, in September 2021. Do you expect the flow to remain above the same in the coming months given the increasing new-age investors count?
We are continuously seeing healthy inflows due to a mix of equity market performance and new fund offer launches in recent months. Moreover, there are no other investment avenues for higher returns given the lower bond yields and Fixed Deposits and small savings rates are at historically low levels and therefore not attractive even on an inflation-adjusted basis.
We, therefore, expect inflows to the equity markets to remain strong. With the increase in employment and salaries in the past months, we could see more increase in SIPs as well.
Q: With the falling coronavirus cases and expectations of less impact of the third Covid wave, do you expect a faster recovery in the economy in coming quarters? Will India surpass the RBI's growth forecast of 9.5 percent in FY22?
While we do expect festive push, pent-up demand, good monsoon, improving rural sentiment, improving exports to support growth in the coming months, key concerns remain higher energy prices, ongoing coal crisis, as well as supply chain bottlenecks, could hamper the growth momentum in the near term.
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