Tuesday, June 16, 2009

Is it the right time to invest???

Opportunity, they say, favours the prepared mind! The one good thing the leftists have done for India is getting off the back of the government and giving Dr. Manmohan Singh an opportunity to realize the potential of an idea (India) whose time has come!

The outcome of the parliamentary elections results caught everyone --retail as well as institutional investors (Local + foreign) unawares! They were left sitting on cash, while the market galloped beyond 15000 levels! The question on top of everyone’s mind is “What now?” The one question that we normally come across is whether now is the right time to invest? If yes, where? If anything, this market has proved the adage that it is not your thinking that makes big money, it is sitting—through good and tough times.

Though in the forthcoming budget it will be extremely difficult to get the fine balance between revenue growth and revenue expenditure but, one thing will be clear that there might be lot of focus on how improve the credit delivery mechanism (due to low interest rate) to those projects which can drive faster economic recovery. Basically, infrastructure spending, in our view, will gain more prominence in the next 18 months so as to get the growth back on track. Therefore, the Government would probably leave the fiscal issue at this point of time as it is and focus on growth through changing the climate for investment in India per se. We feel this will also get added flip and boost confidence, if the monsoon, turns out to be normal from rural India perspective. Any positive feelers on this front would increase the confidence of the Government in bringing down agri commodity lead inflation in the coming months. If we have to summarize the potential outcome and portfolio positioning, it may turn out to be as follows:

Ø Low interest rate regime combined with pro growth stable Government at the centre, we feel there will be renewed focus on – Power & related sectors, Nuclear Power, Rural road, agriculture and Urban development (through metro railways) etc.

Ø Low interest rate and suitable policy environment will create renewed interest in Real Estate and SEZs. Real Estate could be the biggest beneficiaries as this sector not only drives the demand for steel, cement and overall growth in the economy, it also provides huge employment.

Ø Domestic lead growth would keep up the interest in telecom sectors even going forward targeting towards much bigger penetration level. Auto sectors will also benefit with lower interest rates and overall improved environment.

Ø FDI could become the big area of focus in sectors that needs huge capital investment. It will be largely in the space of Insurance, Media and Airlines. However, retail FDI may not be the area of focus at this point of time given the sensitivity attached to the local vendors

Ø Banking and Finance would continue to drive the growth. However, we feel Private sector banks could be the biggest beneficiaries as some of them will benefit out of opening up of FDI in areas like Insurance.

Ø Engineering and Capital goods sector will also begin to benefit out of the pro investment policies as we well as potential rupee appreciation again USD.

Ø PSU reforms could be on the agenda; however, this will happen at a slower phase. But, there is a probability of supply of paper in the PSU space through Government divestment to meet the fiscal targets. One may look for public issues from BSNL, NHPC etc.....

Having identified the road map as above of the government coupled with various policy intents of Dr. Manmohan Singh, we believe that over the next 1-2 years focus on the large cap diversified funds along with economy related (which includes infrastructure sector) schemes of Mutual Fund would pay off well. The schemes to be considered and which are included in our universe of schemes are as under:-

ü DSP Blackrock TIGER (The Indian Growth & Economy Related) Fund

ü Reliance Infrastructure Fund (NFO now open)

ü Reliance Diversified Power Sector Fund

ü Reliance Banking Fund

Having focused on the investment avenues, the one answer that all investors want is whether this is the right time to invest – having missed the current rally?

We would not able to comment whether this is the right time to invest or not. However, what we may emphatically answer is that the time to invest has arrived as there is no reason to believe that the current rally will be last one.

If your portfolio does not contain any of the economy related fund then we would strongly recommend investment in Reliance Infrastructure Fund

NFO is now open. Please feel free to contact us for any query; we’re just a phone call away