Don't see significant slowdown in retail flows: Tata AIA Life's Patil

Retail money is a factor in the lack of attractive alternate investment avenues among other asset classes: Patil

A reasonably aggressive rate hike cycle by the US Fed has been already factored in by the markets, says HARSHAD PATIL, chief investment officer, Tata AIA Life, in an interview with Puneet Wadhwa. Edited excerpts:

What’s your outlook for the markets?
 

Given the heightened volatility caused by geopolitical tensions leading to a surge in commodity prices, and thereby affecting earnings in the near term, we believe that the markets may remain range-bound and only regain momentum after geopolitical tensions are abated and there is normalisation of inflationary pressure. We expect returns from the markets to be in the low teens in 2022. Overall, the financial sector, especially big banks, is likely to be a safer investment avenue, given relatively cheap valuations than historical averages, as well as improving asset quality and growth outlook.

Will it be a good strategy to take some money off the table right now?

A reasonably aggressive rate hike cycle by the US Fed has been already factored in by the markets. However, if there is a further surprise on account of the surge in US inflation from its already elevated trajectory, the markets would have to take that on board and may be compelled to react to it.
 

Do you expect retail participation to ease amid heightened market volatility?
 

Retail money is a factor in the lack of attractive alternate investment avenues among other asset classes. While any emerging alternative investment option can lead to some shift, we don’t see a significant slowdown in retail flows. Moreover, we continue to see the institutionalisation of flows with higher flows into SIP, as well as flows into the ULIP schemes of insurance companies.

What has been your investment strategy thus far in 2022?
 

Our portfolio approach has always been bottom-up and stock selection based on fundamentals and valuations, irrespective of market movements and associated volatility. Having said that, it would be prudent to be cautious given heightened volatility at present levels.
 

What are your expectations from the March 2022 quarter corporate results?
 

Supply chain disruptions are visible across sectors, given geopolitical tensions, and most of these will be factored in the earning expectations for the current quarter. We would be keenly watching these supply chain issues getting resolved at the earliest and the ability of corporations to cope with them or pass these rising costs to the end customer, without materially impacting demand. While the quarter may be muted due to rising input costs, FY23 numbers could see mid-teen growth in earnings.

Rising commodity prices have yet again stoked inflation fears. What policy response from the government is being looked at by foreign investors?
 

The broad-based surge in commodity prices is one of the key reasons for volatility in the global equity markets. The market is factoring in elevated commodity prices to an extent but the level and longevity of these elevated commodity prices will be crucial in ascertaining their impact on the overall economy in general and corporate earnings, in particular.

To what extent will rising input costs make a dent in corporate earnings?

Rising input costs are global, in nature, and will affect most sectors. However, these are likely to moderate once geopolitical tensions ease and consequently economies achieve some degree of stabilisation. Production-linked incentives (PLI) are designed for encouraging the creation of globally competitive manufacturing facilities in the country in the medium-to-long term and this should not be affected by short-term volatility in input costs.



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