Fixed income looks attractive: S Naren

The vote-on-account has been on expected lines. The cut in excise duties on automobiles and capital goods will help revive sentiment in these sectors in the near term. The discipline in keeping the fiscal deficit under check and staying away from populist measures is commendable and highly appreciated.

The general election results remain crucial for the year 2014. While the outcome of this event is unknown, what is certain is that it will play a significant role in the market. We are looking for a government focused on growth, lower inflation and better governance. If we find a government at the Centre that is not pro-growth, it could dampen market sentiments. In such a situation, while we might see specific-sector bets outperforming, the market as a whole might not see many winners, and volatility might continue. We cannot afford a situation where industrial growth continues to remain subdued for an extended period.

A country like India whose population grows at an annual rate of 1.5 per cent should ideally have industrial production growth of five-six per cent. We believe in the next three years, industrial production growth will normalise at six-eight per cent. We have taken a call to stick with cyclical sectors in-line with this view. We believe that small and midcaps should do well over the next three years, backed by growth in industrial production.

Investing in fixed income looks attractive. Interest rates are at an all-time high and equities valuations are low. While we like fixed income, we are clearly staying away from companies that are heavily leveraged. We want to be with companies that are cash-rich.

We do not see an uptrend for gold or real estate. We strongly advise investors to reduce their investments in physical assets and move to financial assets. Fortunately, this appears to have commenced; Indian investors are slowly moving out of physical assets like gold and real estate, and investing in bank deposits or fixed income. An increase in bank deposits will ideally ease interest rates.

S Naren,
Chief investment officer, ICICI Prudential Asset Management