Daily Voice | Rule out deep correction in market, strong earnings trajectory to continue, says Sampath Reddy of Bajaj Allianz

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Sampath Reddy, Head of Investment Head in Bajaj Allianz Life Insurance, said revenue growth would support the stock market rally even amid the challenge of the withdrawal of interest rates and headwinds next year because the economy had exited the pandemic slowdown.

The strong company income trajectory is estimated at FY22 and FY23, Reddy told MoneyControl in an interview. Every decrease in the stock market may not be too deep and must be used as an opportunity to buy, Reddy said, which has more than 20 years of experience in investment management. Edited quotes:

The monetary policy committee will announce the current interest rate decision. What is your extensive expectations and do you expect Bank India’s backup to take more steps to squeeze liquidity?

Overall, throughout the council, the central banker took steps to gradually pedaling the levels of liquidity introduced during a pandemic. The US Federal Reserve began to tap from November and lately said that there was a need to increase tapered speed. In India, we hope the RBI keeps interest rates unchanged … and maintain its accommodating attitude. The RBI will continue to calibrate its steps to normalize the excess liquidity in the banking system. However, we hope it will keep a balanced policy tone at this point, given inflation and growth dynamics. At present, we prefer the medium-term part of the yield curve remembering curve’s steepness.

The RBI can start by reducing the corridor between the repo and the reverse repo level (by increasing the reverse repo level) at the beginning of CY2022, followed by 1-2 repo interest rates then during the calendar year-given the developing trajectory of inflation.

What is your reading of the GDP Q2 announced on November 30? Have you changed your full year estimation for GDP?

GDP growth for Q2 came in expectations of 8.4 percent year-on-year and absolutely, the current level was slightly above the pre-pandemic level. Private consumption expenditure, which has the highest weight in GDP (around 55 percent) grew slightly below expectations at 8.6 percent yoy during the quarter. During the last three months, trade data showed pickups in domestic demand led by strong import consumption. The establishment of gross fixed capital (investment) grew by 11 percent strong in Q2 and government spending was also supported by growing at 8.7 percent … compared to contractions in the previous quarter.

We continue to believe that GDP India will grow around 9.5 percent, which is similar to the RBI estimate for full fiscal year. There is some uncertainty with the latest news from the Omicron variant of the Covid-19 virus, but it is still a developing situation and we do not see the big impact of it at the current estimated growth.

Do you think it’s the right time to bet in the automatic sector, especially after seeing monthly sales for November?

The automatic sector has not reached the level of pre-covid sales in part because of the obstacles on the supply side (lack of semiconductor chips) and partly because of lower demand in the level of entry level segment. In addition, this sector faces the wind from margin pressure because of the increase in commodity prices such as steel, aluminum, rubber and plastic.

However, the electric vehicle segment sees healthy traction and strong demand growth. This poses a threat to traditional auto OEM (original equipment manufacturer) and we prefer to find good opportunities in EV room … if the recovery of economic growth continues to get traction, the automatic sector must also benefit from it.