“IT services exports, led by expected improvement in spends, in US would continue to perform in FY25. Also, banks may see some improvement as the liquidity in the system becomes less tight post RBI CRR cut,” he says. Edited excerpts from a chat:
The GDP data hit a 7-quarter low. How does the macro picture look for investors?
July to September quarter India GDP growth came in at 5.4% y-o-y, lower than 6.7% in the previous quarter, and well below market expectation. The tepid Q2 FY 2025 GDP was led by slowdown in government spending, investment demand and export growth. On the production side, weaker growth was observed in the industrial segment, while the services sector recorded a healthy but slightly lower expansion of 7.1%. Agriculture, on the other hand, expanded at a strong pace, as reflected in the advanced estimates for Kharif output.
Corporate earnings for Q2FY25 saw broad-based earnings pressure driven by weak commodity sector, slowing consumption and cracks in domestic cyclicals such as Autos and Bank. We expect higher economic activity in the second half FY 2025 through tailwinds to rural demand and public investments. The services sector continues to be a major contributor to India’s GDP and has seen record hiring and strong demand, with the Services PMIs in sharp expansionary zone.
What are the macro growth factors for India in the coming year?
After a period of impressive GDP growth post covid, India’s recent data releases indicate mixed signals. However, we believe growth is likely to revive in the second half of FY25 led by increased government spending and improvement in rural demand. India is expected to remain the fastest growing large top 10 economy in the coming year as we expect a strong agricultural output due to favourable monsoon conditions further boosting the rural recovery.
The manufacturing sector is experiencing high-capacity utilization, which is likely to spur private investments. Increased public infrastructure spending is expected to sustain and drive robust investment growth. The services sector, particularly in areas like technology and finance, continues to grow, contributing significantly to the overall economic output. The Reserve Bank of India (RBI) in its recent Monetary policy announcement has cut CRR by 50bps. This reduction in the CRR would release primary liquidity of about INR 1.16 trillion to the banking system, providing crucial support for economic activity and investment. While global economic uncertainties remain, India might benefit from higher capital inflows as multinational companies seek cost-effective operational bases. These factors collectively suggest a resilient economic outlook for India.
A lot of the bullish narrative in the market right now hinges on hopes of a revival in H2. How are you ensuring that your investment is protected just in case this theory of revival in H2 doesn’t go as planned?
We follow a bottom-up investment philosophy where we focus on the performance of individual companies. By focusing on factors like business fundamentals, growth potential, competitive advantage, management quality and governance, we identify strong investment opportunities which have high long-term potential and can ride out short term volatility, if weak economic conditions play out in the near term.
As we step into the new year 2025 which sectors do you think are going to get most of the attention?
We believe that the Government spending will pick up pace in H2 FY 25. We are of the view that manufacturing, both domestic & exports is expected to remain strong led by government incentives and China plus one theme. IT services exports led by expected improvement in spends in US would continue to perform in FY25. Also, Banks may see some improvement as the liquidity in the system becomes less tight post RBI CRR cut.
Do you think FII selling is done now and the market will bounce back to a lifetime peak once again by the end of the calendar year? What are the chances of a Santa rally this time?
Strong domestic flows have been cushioning the market from relentless FII outflows in the month of October and November to the tune of around USD 13 Bn, limiting the market correction to around 7%. We do not comment on market’s short-term moves. That said, we remain constructive on Indian equities in the medium to long term.
How will we see momentum investing play rule once again in 2025? What is your view on this strategy?
Momentum investing involves identifying securities with strong recent performance adjusted for volatility. This strategy capitalizes on the tendency of winning stocks to continue performing well in the short term. Momentum strategy works best in an up-trending market. A momentum strategy excels in an up-trending market and, despite facing challenges during volatile conditions, it remains a rewarding approach over the long term. While short-term fluctuations may test investor confidence, the strategy’s long-term potential is promising. We believe that adding Quality as a factor to our quant strategy would help mitigate volatility. Quality companies typically have strong balance sheets with low debt levels and higher return ratios. This increases their financial stability and makes them less vulnerable to economic downturns. By investing in quality companies, investors can achieve more predictable returns and reduce the risk of significant losses.
Our upcoming Tata AIA Life Multicap Momentum Quality Index Fund would benefit our policyholders to meet their long-term investment goals as the fund offers investing in Multicap stocks with combined strategies of Momentum stocks and Quality businesses which captures the upside potential of up-trending stocks while ensuring that these stocks are fundamentally sound. This would ensure that the policyholder would remain invested for the longer term to allow the power of compounding to play out, thereby meeting their long-term financial goals.
How has the Tata AIA fund performed in the last few years? What are the factors driving the fund performance?
Morningstar, which is an internationally recognized agency and rates insurance funds in India, has rated 96.19% of Tata AIA Life’s rated AUM as 4 or 5 star on a 5 year basis as on 31st October 2024. Among the recent NFOs, the Emerging opportunities Fund which was launched in December 2022 has delivered a return of 41.37% since inception as on 31st October 2024 as compared to the benchmark return of 35.46% during the same period. Subsequently we have launched new funds in the Smallcap, Flexicap, Sustainability and Hybrid spaces. These funds have delivered strong returns and have added value to our esteemed policyholders in relatively short period of time since their launch.
We focus on delivering superior, consistent and risk adjusted long term returns, in line with the fund’s investment objective. We follow a bottom-up stock picking approach backed by a well-defined research process. This has helped us in delivering outstanding fund performance across our funds.