Indian equities may be gyrating on fears of Europe's spreading contagion, but N Mohan Raj, executive director in charge of investments at LIC, India's largest fund manager, remains unfazed. "We will not be swayed by short term volatility. The valuation has cooled down a bit. Every dip is an opportunity to buy," he has said, as per a report in the Indian Express Finance.
Raj expects the market to touch 19,500-levels by the end of this fiscal, which translates into returns of about 15% from current levels. His optimism stems from the fact that India's economy continues to be on a firm footing notwithstanding the turmoil in developed economies. "Locally, we don't see any trigger other than the monsoon. A good monsoon will do a lot of good for the economy, help spur rural demand and keep the food inflation in check," he says.
That said, India is not fully immune to global headwinds. "Global cues will determine how much money is brought into India by foreign institutional investors (FIIs). FII flows might feed into the sentiments of domestic institutional investors as well," says Raj. In fact, there is a strong possibility that FII flows might reverse if the dollar continues to strengthen. According to Raj, currency gain is one of the key reasons foreign investors (from the dollar region) put in their monies in riskier emerging markets like India. "If that arbitrage shrinks they might look for an exit," he cautions.
Going forward, Raj reckons sectors such as infrastructure, banking and FMCG are set to do well in India. "A lot of money is set to pour into infrastructure. The government also seems to be serious about investing in this space," says Raj, adding that the importance of infrastructure for the development of the country cannot be overemphasised.
According to him, the fourth quarter earnings season has been better than expected. However, he warns that the next quarter might not be as cheerful. "Input costs have risen across sectors. Higher inputs costs will moderate earnings," he says.
LIC has invested to the tune of Rs 1,93,000 crore in FY10 in various asset classes, of which a little over Rs 61,000 crore was put into equity. It invested nearly Rs 8,400 crore in equities in the first two months of the current financial year, about seven times the amount it had invested during the corresponding period of the previous fiscal.
Traditionally, the fourth quarter of the financial year sees the maximum sale of insurance policies. "This is available for deployment in the next financial year,"said Raj.