We do not expect DIIs to cash out, says Jitendra Arora of ICICI Pru Life

Jitendra Arora, senior executive vice-president and fund manager for equity at ICICI Prudential Life Insurance expects earnings growth for FY24 & FY25 to be around 24% and 14%, respectively.

Calendar year 2023 has turned out to be a good year for equity investors with indices rallying to new highs. JITENDRA ARORA, senior executive vice-president and fund manager for equity at ICICI Prudential Life Insurance, tells Puneet Wadhwa in an email interview that India remains an attractive long-term destination. Edited excerpts:

Do you expect the markets to remain range-bound and offer limited upside in 2024 as the two big global economies - the US and India - face elections?

Asset prices are a function of fundamentals and short-term factors like liquidity, sentiment, environment (political/policy) etc. The Indian equity market has done very well over the last few years. India Inc is in a much better health due to reduced debt and better profitability. This, coupled with the fact that India is likely to remain one of the fastest-growing major economies over the next decade, makes it an attractive long-term investment destination.

The current global interest rate scenario, strong economic growth and positive outlook for the Indian economy have led to strong inflows of funds, driving market valuations to levels at a premium compared to its history, warranting caution, specifically in mid-and-small-caps during the short term. However, given the solid macro fundamentals, Indian equity markets will remain an attractive destination for long-term investors.

Which sectors and stocks offer a good upside in the year ahead?

We prefer stocks that are likely to gain from the strong domestic growth potential. Among various sectors, we like certain stocks from banking, insurance, retail, hospitals and capital goods. Though some of these stocks may seem expensive, they will compound well over the long term, thus justifying their current multiples.

How do you see flows to the equity segment play out in the next 12 months?

Barring an external shock, we expect foreign inflows to remain positive given the long-term attractiveness of the Indian economy. For the next 12 months, market sentiments will drive the FII inflows. Due to economic stability and earnings predictability, India will likely score high on the FII radar during the medium to long term. We do not expect DIIs to cash out.

How do you see global central bank policies play out amid sticky inflation and geopolitical developments?

We see rates higher for an extended period. In the US, we expect policy rates to remain at elevated levels, with no rate cuts until the middle of CY24 and a low probability of a US recession. Policy rates of Asian countries, including India, are expected to remain stable. However, in the latter half of CY24, the Reserve Bank of India (RBI) is likely to cut rates.

Indian bond yields are stable due to status quo on rates and the anticipated flows on account of inclusion in global bond indices. However, the fiscal situation is what we should be monitoring in the global and Indian markets, given the fiscal deficit remains elevated in the US and India.

Investors may demand higher rates to fund deficits, which can have a ripple effect on equity markets and on the overall economy as the government crowds out the private sector from capital markets.

What's the road ahead for corporate earnings?

Corporate earnings are tracking well with Nifty earnings growing at around 33 per cent in H1-FY2024. Earnings growth is expected at 24 per cent / 14 per cent in FY24/25 respectively, with growth appearing broad-based across sectors. We are in the early stage of private capex recovery, and expect this cycle to show better momentum over the next 12 months due to a combination of the strong balance-sheet of India Inc, China+1 and PLI-led initiatives.