Gold returns may not have earlier sheen

Markets in 2012 have rallied when least expected. What is the advice now to equity investors?

The valuations are still looking reasonable and we have not crossed the fair valuation of the market. From single-digit earnings growth now, earnings growth is also expected to be far better next year. Bloomberg estimates about 14 per cent growth in corporate earnings next year. So I think one should hold on. Besides, typically for an Indian investor, the asset allocation is generally weaker towards equity. Secondly, the pressure could ease out on most of the problems such as inflation and high interest rates. So from that perspective, though we may not expect 20-25 per cent growth, the downside is also not much. I think it would be a sideways market.

What could be the triggers for better corporate profits in 2013?

In terms of triggers, clearly the interest rates have peaked out. If you look at corporate profitability, the interest costs have gone up, one, on account of higher interest rates, and two, on account of leverage in the balance sheet. Both these things are likely to correct. That could be an earnings driver. The second driver, especially for margin expansion, could be benign commodity prices.

What were the sectors and stock picks that did well for UTI funds in the last one year?

For us, cement, IT and media calls were beneficial. We also benefited from the consumption theme. In terms of stocks, ICICI Bank and Zee Entertainment helped.

We have been talking about the consumption theme doing well vis-à-vis the investment theme this year. Do you expect sectors such as FMCG to keep doing well next year too?

In terms of the demand support, FMCG will continue to have that simply because of the demographic profile that we have. But the valuations are stretched — 35-40 times is something which is at a much higher premium to the general market. So I think if the interest rate softening theme catches up, then, this sector might under-perform in the short run. But because there is demand potential as well as earnings sustainability there, some correction in the valuations could again find investors interested in these stocks.

We have recently seen consumer stocks going down and cyclicals picking up — do you think this is a new market cycle?

Typically a new cycle is expected when the private investment cycle also picks up. Now this shift is happening based on expectations. So I think commitment of capex from a sustained perspective would take more time. But yes, right now, the shift is more towards cyclicals such as auto, banking rather than capital goods.

How do you see commodity prices and rupee playing out in 2013?

If China really comes back, the commodity prices might firm up. Given the current situation and the global slowdown, I don’t think commodity prices are in for a shock. Having said that, for oil particularly, we are quite susceptible. That could be driven by geo-political factors and hence, one cannot take a call for sure on oil prices. On the rupee front, given the fiscal problems we have on hand, such as the current account deficit, I think it is likely to remain weak.

In 2013, what kind of investments should we bet on?

In equities, I think interest rate-sensitive sectors will play out. In terms of any other asset classes, typically when the interest rate cycle peaks out, bonds and long dated securities also tend to do well. On gold, we are expecting currency to remain weak so we get a good hedge in gold prices. Even if dollar denominated prices don’t move anywhere, you get the currency benefit there. Otherwise, I don’t think the kind of rise we have seen in 2008-11 would repeat.

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