The present Government is fortunate that it has assumed charge when GDP has bottomed out, oil prices have peaked out and so have interest rates, inflation and fiscal deficit, says Vikram Kotak, CEO & MD – Asset & Wealth Management, Fortune Financial Services. Excerpts from an interview to BusinessLine:

Sentiment has improved… What next?

Business/ investor sentiment has improved. People sit on the sidelines when there is lack of clarity. Now, people want to commit more money to risk assets.

Mutual funds are buying.

It all started by removing small impediments such as notarisation, increasing rail freight and relaxing FDI norms in insurance. Goods and Services Tax (GST) will take three years, but once it comes, tax compliance will go up and revenue will follow.

What needs to be done?

The Government has to kick-start investment projects faster and focus more on FDI. Focus should also be on governance and reduction of leakage. We have seen this happen in Gujarat in the last 15 years. The Gujarat Government works like the private sector.

What about the macro-economic variables?

Inflation is slowly receding and vegetable inflation is a one-off. RBI might reduce interest rates by Q4FY15 by 25 bps. In FY16 a drop of 50-75 bps is likely. On the currency front, we might see an appreciation policy from the RBI, but it will find its own level. I expect about 8-10 per cent appreciation over five years. When growth increases FII/FDI flows go up and fiscal deficit if managed properly would automatically shore up sovereign ratings.

What is your GDP target for the next two years?

I expect FY15 growth at 6 per cent and 6.5-7 per cent in FY16. Exports, healthcare, IT, FMCG, auto and private banks will lead th earnings growth.

Which sectors should one’s portfolio contain?

It is a buy-on-dips market for another three years. First would be pharma, IT and the private banks. The second are those with operating leverages such as cement, capital goods and auto ancillaries. These sectors are now operating at about 60 per cent capacity utilisation. Here the delta (growth) is high as it directly adds to your profitability.

The third is sectors that get moving according to policy changes. For example, diesel price de-regulation will impact oil and gas; power will be affected by coal issues; then we have FDI in defence and insurance. One should end up making a portfolio out of these.

Finally, what are the risks should one be wary of?

Though there is a risk of correction due to a huge paper supply in the markets — ₹80,000 crore, including divestments which cuts both ways – market goes up healthily after a correction than when it rises suddenly.

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