The capital market has been on a topsy-turvy ride with lots of uncertainty over future growth. Riding on the positive sentiment on the Narendra Modi government, mutual funds have launched a series of theme-based equity schemes to woo retail investments. Investors are keeping their fingers crossed even as the government is fighting out to implement its reforms. Mahesh Patil, co-Chief Investment Officer, Birla Sun Life Asset Management Company, spoke to BusinessLine on various issues and market outlook.

Do you the think the market is losing out steam?

After the run-up in the last one year on expectations of an economic recovery, the markets are on a consolidation stage. We have seen the big events such as Budget and rate cuts behind us. There is no immediate trigger right now. We are looking at the corporate earning season to drive the market. There is no real improvement expected in companies’ profitability. The December quarter was disappointing. We think there will be some disappointment in the March quarter as well.

We have seen a cut in government expenditure to meet the fiscal deficit target. So there is a slowdown in some of the core sectors such as cement and steel. We expect a recovery from the second quarter of FY16 as the government starts spending. The Budget has envisaged a higher spending of 25 per cent compared to last year. The current fall is a minor blip in the long-term bullish trend.

How do you see earnings for the next fiscal?

We have seen the coal auctioning and insurance bill getting through. The government has announced plans to make gas available at particular prices to make power plants viable and service their debts. The impact of this will be seen in the next few quarters. The benefit of the fall in commodity prices will start showing up from the June quarter. The benefit of interest rate will also add to corporate earnings. We expect all these factors should lead to an earning growth of 16-20 per cent this fiscal. Higher growth is expected in banking, auto and telecom.

With production cost going up, how competitive India will be in global markets?

Exports would be a challenge. We have to improve our productivity and logistics cost. Infrastructure is not that great. Our roads and ports are not in good shape. Many a times, the goods lie there. Longer turnaround time adds to the cost. The government is rightly focusing on creating infrastructure, which will be the key. It may not happen immediately. The capital cost has come down a bit and will fall further. With all the reforms in place, we should be competitive in the global markets for the next two-three years.

How will an interest rate hike in the US impact India?

I think a US Fed rate hike is not going to happen in the near future. With dollar strengthening against most currencies and inflation still being low, a rate hike could make dollar even stronger and it would not be good for the US economy. The US rate hike could be delayed, but whenever it happens there could be some turbulence in emerging markets and India would not be unscathed. As long as the India growth story remains, these events should not worry us much.

How do you see concern over monsoon playing on inflation?

Yes, inflation plays an important role in government’s policymaking. We got a good tailwind of low commodity prices till now. But the real risk now lies in them moving up in, say, two years. Last year, we had a poor monsoon and there was a spike in prices. Though the advance of monsoon has been good, the food prices may increase and push up inflation if it fails somewhere in between. Monsoon poses a big risk even in terms of further cut in interest rates. I think it is one of the risks one needs to take cognisance of when you are taking any investment decision.

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