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By ET Now | 13 Jul, 2013, 05.08PM IST Post a Comment

The market today is in a complete risk off mode where we

continue to give higher multiples to sectors where thefundamentals are deteriorating, says Prasun Gajri

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Don't expect markets to give very high returns this year:Prasun Gajri, HDFC Life Insurance

In an interview withET Now's Nikunj Dalmia, Prasun Gajri, CIO, HDFC Life Insurance,

shares his views on the markets. Excerpts:

ET Now: The big picture is that macro is looking slightly challenging, money is

moving out of the markets and crude prices are refusing to come down.

Prasun Gajri: Yes, the macro is clearly challenging and that is what is reflected in the way

the rupee has been behaving. So that is a clear indication that any capital inflow or outflow,

which happens very quickly, can lead to a large change in the way our macro is positioned.

So that has been a problem for a while, it is just getting accentuated.

ET Now: Is it a time now to hunker down all the recovery expectations?

Prasun Gajri: If you are looking at current account that is a challenging problem,, which is

not going to go in a hurry. Clearly, one can argue whether it is $80 billion or $90 billion, but

we have to fund somewhere to the tune of $80 to $90 billion every year at least for this year

and that will require reasonably benign global flows. Therefore, that problem remains.

On the fiscal side, while the intentions from the government do seem to indicate that they

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ET Now: Do you expect that Q1 numbers will be rather noisy given the way how the rupee has moved for the quarter gone by,

what has happened to bond yields and commodity prices?

Prasun Gajri: See there could have been noise, but the fact is that the rupee movement does not tend to appear in the P&L given theway the accounting is done. It tends to go into the balance sheet, so it does not necessarily make it all that noisy. Having said that, I do

not think there are any great expectations from this quarter. Most people anticipate virtually zero to very-very low growth for this quarter.

So we are not really building in any major positive surprises. The interest rates have moved, that is something which has been the case

for a while. So I do not think that really clouds the things, but overall no major expectations from this quarter.


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Prasun Gajri: The story which has been for a while is a stronger US growth and weaker Europe and probably a little bit better Japan and

a weaker China. Now that is something which seems to be driving the global economy at the moment, and at the margin that is something

which is going to drive the global asset prices as well. Now the question remains how strong is really the US economy? The indicators we

have seen so far do point out that it is coming out from the lows, but how strong does it really get? We are still talking about 2 to 2.5% kindof growth!


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be good bets over the next 12-18 months whenever the market decides to become much more valuation- oriented. That strategy has not

really worked for a while, but that does not mean it will never work.

p g y g y j p p p g y g

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So we need to kind of take a balanced approach and manage that, but our bias will clearly be towards something which is valuation-

oriented.

ET Now: But what happens in a scenario where the change is not strong or the economic recovery really disappoints in the

coming quarters?

Prasun Gajri: I do not think there is a major correlation between high GDP growth and very good returns from the equity market. So the

markets were pretty much discounted. I would not be too perturb if the GDP growth numbers do not really add up to 6% plus. As long as

the broad valuations are aligned with what the earning growth in some of these names is going to be, one has to continuously focus on

earnings growth and valuations. It is just that over a shorter period time some of these strategies are not necessarily working because it isa clearly risk on, risk off trade and where you want to even in a risk on trade money is just pouring into the same defensives clearly

because people believe that if they want to exit, it is much easier from there and these stocks are pretty good in terms of fundamentals

and the earnings growth is reasonable. Now that is one strategy which has worked.

ET Now: At a time when FIIs are selling because of redemption pressures, which are some of the key names, ideas or group of

stocks where you are putting money to work?

Prasun Gajri: I do not think you have seen that crack as yet. We would be obviously waiting a lot, as a consumption theme I really love

that theme that is a clearly a longer term theme in India, but we are obviously watching a number of stocks. As and when the valuations

start correcting, we would be looking to buy into those names, but clearly we have not seen that correction as yet. Even if there has been

some selling, we have not seen that correction in any meaningful manner.

ET Now: So where is deep value in this market? Is there a lot of value in beaten down PSU banks, thrashed out metal stocks or

under-owned industrials?

Prasun Gajri: Select PSU banks clearly are reflecting possibly a really bad scenario and reasonable dividend yields with price to book at

the lowest for the last five to six years. So there is value in some of those names. Again one will have to be selective.

ET Now: What is your take on interest rates?

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Prasun Gajri: Clearly the rate cuts are off the table. I do not think the RBI is going to do too much in the July policy. So I do not think the

market is anticipating that either. Having said that, two factors are at play. In the short run yields are going to be range-bound, nothing

much is going to happen because there are really no triggers. I would be a little bit concerned on the fiscal situation. If the government

decides to borrow more, that would be a cause for concern, but having said that and given the fact that the credit growth in the system

seems to be fairly lacklustre, the SLR numbers of the banks have actually come down over the last six months.

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There should be enough demand for the government paper and that could help keep the yields under check. My sense is that if the yields

reach say 7.75%, you could see a very strong buying from the domestic investors in the yield and the retail investor is still convinced

about that. Lots of retail investors miss the first leg of rally on the bonds and they would be interested in catching this rally if it really gets

back to 7.75 odd levels. So my own sense is, it is a range-bound market with a positive bias at least for the next three to four months.

Then the fiscal situation could start impinging on it and depending on how the data really comes out, one would have to really take a call

on the interest rates. But in the short term, range bound with a positive bias seems more likely.

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