Key Insights by Bajaj Finserv Asset Management Limited

· India is one of the better placed investment destinations around the world both for equity & debt.
· The real GDP growth rate for India is highest amongst large economies & is expected to remain this way in the medium term driven by favourable demographics & increase labour force participation amongst females.
· The public finances, in terms of forex reserves & external debt are at comfortable levels providing cushion to external shocks.
· While the fiscal deficit is high, it is on a consolidation path post the covid-19 spike. This augurs well for long term economic stability.
· Robust tax collections, both indirect & direct taxes give comfort to the government’s ability to fund its ambitious plans on infrastructure development, which is already at an all-time high.
· Bottom-up story is also building up nicely as private consumption & private corporate capex both picking up.
· After long hiatus, corporate India is expanding capacities and investing in newer factories, robotics & automation, and tech.
· A much-improved corporate balance sheet will ensure ‘non-availability of funds’ does not nip the nascent private capex upcycle in the bud.
· India’s consumption demand is expected to witness a ‘J’ curve.
· With India’s per capita income crossing US$ 2500 mark in 2023. It is expected to have a spurt in discretionary consumption as seen other EMs like China, Brazil, South Korea etc.
· Premiumization trends in cars & real estate and other discretionary items are clearly visible & is expected to get stronger.
· Domestic Flows are strong with MF AUM at an all-time high. Strong SIP flows provide sticky monthly liquidity to the markets. Capital market investments are still a small portion of Indian household savings providing long runway for growth.
· High speed indicators like e-way bills, port activity & government spending on capex is tracking well.
· Key risk to watch out for:
· Impact on slowing global economy to have impact on trade, flows and prices.

· An adverse election outcome can bring in political instability (a low probability event).
· Erratic weather can further delay revival in rural economy. It can also result in the government diverting funds to support rural economy from capital expenditure budget.
· Sectoral outlook
· Banking is witnessing improved growth rates as credit demand is picking up. The sector is seeing all time low NPL accretion & high capitalization levels. NIMs can see some moderation with Interest rate cycle reversing. Valuation is comfortable.
· Consumer: Consumer staples is facing demand headwinds with weak rural demand. Timely monsoons will be the key for volumes to revive for most companies. Discretionary consumption is better placed with premium segments doing much better in comparison to the affordable segments. There are pockets of undervaluation in the sector when looked at in context of improving outlook.
· IT Services: Demand environment remains weak with expected slowdown in developed world weighing on IT spends of global companies. Cost pressures have been reduced as supply concerns have eased off.
· Capital goods & industrials: The cyclical upturn in demand is expected to continue in the medium term. General elections, however, can act as a pause as government orders might slowdown. Execution capability & valuation comfort needs to be validated via bottom-up research before taking an exposure.
· Pharma: Drug shortages in the US is resulting in cyclical pick up in export focused pharma companies. Indian pharma market is witnessing an improved demand on a weak base. Margins are expected to be supported by falling input prices. Overall Pharma remains a bottom-up sector with the probability of event risks (USFDA inspections) remaining significant.
· India is trading at a premium to emerging markets. This premium has increased in the near term. However, this is justified given the better return ratios & higher growth differential. Overall, when looked at in the context of improving growth the valuations appear reasonable.
· Quality as a category has underperformed for the last four years. The longest stretch since 2008. Given the strong market rally & pockets of froth, it’s important to choose exciting businesses over exciting stocks.
· In the fixed income market, interest rates have peaked and likely to reverse.
· India placed well on fundamental and flows.
· Good time to lock in yields for investors.
· Scope for high coupon, potential capital gains with low credit risk