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9.5% GDP growth in FY22 achievable, above that will be difficult, says Satish Ramanathan of JM Financial

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Sectors such as financial advisory, insurance look attractive from a long-term point of view, Ramanathan says Satish Ramanathan, director & Chief Investment Officer- Equity, JM Financial Asset Management, says despite various lockdown-like restrictions and shortages that the businesses face, a 9.5 percent growth is achievable.

A high number would be difficult, as a large chunk of the service economy has been hit by the coronavirus, he says. So, a 9-9.5 percent GDP growth would be excellent news.

In an interview with Moneycontrol's Sunil Shankar Matkar, Ramanathan says investors should stick with their objective of long-term asset allocation across fixed income, equity, and other asset classes as suggested by their financial planner. Edited excerpts:

The market is at a record high. Which are the key drivers? does one think the rally will sustain? does one expect a serious correction within the coming months?

The Nifty continues to scale new highs, while midcap and smallcap indices have already experienced a pullback. The breadth of the market continues to be narrow and therefore the advance-decline ratio suggests that markets are tentative.

While markets and the economy are interrelated, they are doing not necessarily move together. From the Indian economy perspective, we believe that a big amount of restructuring has taken place over the past few years, setting the ground for a replacement cycle of consumption, CAPEX, and growth. the govt has been prudent and tried avoiding being too populist and has actually raised its tax levels to fund CAPEX and supply relief for Covid.

We believe that structurally all elements are in situ for corporate performance to still improve from here on. Free cash flows have increased also as debt levels have come down.

Benefits of lower interest rates are now trickling to midcap and smallcap companies also and that we are witnessing deleveraging by small companies also . However, market valuations are at levels where there's no room for disappointments, and considering that there's a big retail element during this rally, volatility is to be expected.

What should be the investor strategy now that the market is at a replacement high?

We recommend that investors stick with their objective of long-term asset allocation across fixed income and equity and other asset classes as suggested by their financial planner. We don't recommend altering weights during a significant manner.

Sure, there could also be bouts of correction which can be used as a chance to extend equity allocation, but is it a time to sell midcaps and move it to large caps— the solution is on a structural basis—not now.

We recommend investors still invest in a systematic manner either through SIPs or the other preferred route. Corrections are often either time-based or value-based and that we reckon that it's going to be more time- based this point. Lump-sum investments are often considered when there are significant moves within the market or into value-based themes as and when the environment is true.

Which are the sectors that have yet to participate within the run? Should investors invest in those sectors now?

Almost all sectors have participated during this rally, which has extended over 16 months now. we've had several reasons for every one of them moving up but the essential premise was that Indian companies will see a significant rise in pricing power and demand both internal and external. tons of this has played out and that we are now experiencing inflation in input costs eroding margins.

Further shortages, thanks to several reasons, have also caused output to drop resulting in some earnings downgrades also.

We will have an interest in investing in long-term sustainable sectors with an extended runway of growth. we discover sectors like financial advisory, insurance, and other such sectors attractive from a long-term point of view.

The primary market has been quite active for quite a year now and tons of companies have filed draft documents for IPOs in 2021. what proportion of money is going to be raised through these offers in 2021 and 2022?

A healthy IPO market is that the key to the long-run vibrancy of capital markets. New businesses and entrepreneurs who re-define business are key to improving capital allocation efficiency. therein sense, we believe that the IPO market which wasn't active for nearly a decade may come and sustain.

Valuations could also be debatable and there's an opportunity that one overpays during a fanatical market but that doesn't change the viability of the underlying business.

So as always, we'd like to try to do our homework before choosing which company to take a position in and know the underlying drivers of growth instead of using the IPO as a lottery.

Do you think the Indian economy can grow in double digits in FY22 against the RBI's growth forecast of 9.5 percent?

Given the varied lockdowns and shortages that the businesses face on several fronts, we believe that a 9.5 percent growth is achievable. To anticipate variety much high than this is able to be difficult, as long as large parts of our service economy are impacted. So, we are quite happy to possess a 9-9.5 percent GDP growth this year.

What we'd like to understand is that if there's an extra outbreak of Covid and therefore the damages thereof. Our vaccination program is proceeding smoothly without major hiccups and it's reasonable to assume that a big portion of our population is roofed with two doses by December 2021. this could cause some sustainability of growth.

Warren Buffett celebrates his birthday on August 30. Which of his investment strategies do you wish the most?

There are tons to find out from Warren Buffett's philosophy and elegance of investing but the one thing that impresses me most is—"never invest during a business you can't understand". Simple because it seems, it's deeply profound. As you ask questions, a variety of things start falling in situ and therefore the decision to shop for or to not buy becomes clearer. Simplicity and customary sense are usually underrated in investing.

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