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Max Life Insurance Co. raised its cash levels to the highest since November 2016 as the equity markets head for their worst month since October.
India’s fourth-largest insurer is holding about 10 percent of its assets in cash, a five-fold jump over levels it usually maintains, as it doesn’t expect a turnaround in sentiment anytime soon, according to Chief Investment Officer Mihir Vora.
We are not taking big calls on equities, Vora, who helps oversee about ₹64,000 crore ($9.3 billion), said in an interview. We are keeping a bit more cash than usual.
The equity indexes have slid 6.4 percent from their record closes in June as tepid earnings and disappointment over lack of stimulus to prop up the economy in the budget plan prompted foreigners to yank more than $1.5 billion from shares this month. The declines crimped the premium the nations shares enjoy over their emerging-nation peers to the smallest since last April.
In terms of growth expectations, the delta between India and the developing markets has reduced in the last few months, Vora said. We don’t think an instant U-turn is expected at this moment on withdrawals by foreign funds, he said.
Still, the gloom hanging over Indian equities is not without a silver lining. The three interest-rate cuts by the central bank this year, and expectations of more to come, will help kick-start growth and lure investors, Vora said.
The way interest rates and liquidity conditions are being addressed in India, sooner rather than later, we will see foreign investment cycle turn, he said. Corporates aren’t investing more, so the de-leveraging and lower interest rates should help drive profits. Whether it takes one quarter or two can be debated.
A rebound in small and mid-sized companies may emerge by the festival season starting in two months, when consumer spending often picks up, he said. Hopefully, the second half of the year would be better.
Excerpts from the interview:
* Expect FY20 Nifty earnings to be about 17 percent versus consensus expectations of over 20 percent; downgrades likely
* Booked profits in bonds as 10-year yield at 6.25 percent-6.35 percent appeared overbought; may look at rebuilding positions if yield rises back to about 6.50 percent
* NOTE: Benchmark yields fell to the lowest in more than two years this month after the government promised fiscal restraint in its budget and proposed to shift a part of its borrowing overseas
* Max Life is underweight on mid- and small-cap stocks, positive on private banks, engineering and software exporters; has pared exposure to consumption sector.
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