by Mr. S Naren, ICICI Prudential Mutual Fund
Over the last three decades,
coalition governments and their inherent difficulties in arriving at consensus
on economic issues hindered economic growth. But, the convincing victory of the National
Democratic Alliance in the general elections,which has got a clear majority by
winning 336 seats of the total 543, has paved the path for progress.
The Indian stock markets
reacted positively to this development on Friday, indicating their conviction
that the only way forward now is north.
Over the next 3 to 5 years, India will
experience a spurt in economic growth, although,in the short term, there will
be some pain.
Growth need not come from
new projects; merely completing existing projects that have been shelved will
initiate growth.
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| Mr. Sankaran Naren, CIO, ICICI Prudential AMC |
The administration and execution focus that PM-designate Mr.
Narendra Modi has demonstrated in the past will lead us to believe that many
projects stuck at various stages will be the first beneficiaries in terms of
getting them off the ground. Debottlenecking projects which involves lesser
capital outlay, but which will improve capacity utilisation needs to receive
immediate focus. By focusing on industries and infrastructure, the new
government will speedily initiate the growth scale to double-digit levels in
the coming years.
In terms of sectors and
themes, banking, infrastructure, industrials, PSUs and the mid- and small-cap
spaces will provide the best opportunities going forward.
Relative to earlier years,
favourites such as consumer goods, pharma and software, cyclicals will offer
better value going forward.
Companies and businesses
that thrived largely due to rupee depreciation in recent years are unlikely to
be the winners going forward. Likewise, the consumer space, which is already
trading at 30 times earnings, looks far less attractive than many other
cyclicals that offer better value. In addition, there are significant re-rating
prospects in the mid- and small-cap spaces. Where fixed income investing is
concerned, going forward, a long secular bull market can be expected.
Any economy that is well
administered will not have the kind of high interest rates that we have in our
economy. If we believe that our economy is likely to be managed more
effectively going forward, then we should look forward to a significant decline
in interest rates. This may not happen overnight, but interest rates will come
down appreciably over the next 2 to 3 years from where we see them today.
There are, therefore, a lot
of opportunities in the fixed income space, particularly in the duration space.
Long-duration bonds hold a lot of value in my opinion, and investors should
seriously consider duration-based funds.
The current situation is
similar to the 2004-06 period, when fundamentals initiated a bull run. Sitting
on the fence at this point in time should be avoided.It is a strong opportunity
for investing based on fundamentals.
About the author
Mr. S. Naren is Chief Investment
Officer at ICICI Prudential Mutual Fund
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