Bull Market: 5 Sectors Could Lead The Next Bull Market, According To Top Value Investor S Naren

S NaranManaging Director and IT Director, ICICI Prudential AMC says domestic cyclicals like banks, autos, infrastructure, cement, capital goods could lead the next bull market on Dalal Street. “Banking and automotive are the sectors that seem attractive. Both have gone through a difficult phase over the past four years and are now ready to take advantage of the opening of the economy,” says the top fund manager in an interview with ETMarkets. Edited excerpts

Your asset allocation fund managed to protect the short term downside and beat Nifty in the long term. Can you explain how you go about rebalancing stocks, debt and gold through market cycles?
Allocation/rebalancing between equity and debt mutual funds is based on an internal valuation model. Besides the model, we also look at the opportunities available in the debt market. Here, the plan has the option to allocate 0-100% to equity or debt depending on the valuation model. The model exhibits the principles of buying low, selling high by increasing equity exposure when markets have fallen and vice versa. The gold allocation is also actively managed. The goal of the program is asset allocation based on disciplined valuation, which ensures a smoother investor experience and long-term wealth creation. As of May 31, the allocation to equities, debt and gold was 33%, 56% and 11% respectively.

What do your valuation models tell you about asset allocation today? What weighting do you place on equities after the recent correction?

The Equity Valuation Index indicates that overall market valuations have moderated from their recent peak amid growing global uncertainty. In line with our asset allocation model, we have increased the equity exposure of our asset allocation fund to 33% as of May 31, 2022, from 19.8% as of January 31, 2022.

Do you think we are in a bear market or is this just a correction in the bull run that started after the pandemic induced crash?

The bull market we had experienced over the past two years was largely due to monetary policy measures initiated by global central banks. Currently, we are in the midst of a cycle of rising interest rates (driven by global central banks) that could lead to lower global economic growth and as such equity markets are expected to remain volatile.

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When would you find valuations attractive enough to overweight equities as an asset class? Maybe when Nifty hits 13,000 or 14,000?

Although India remains one of the most structural markets in the world, the near-term outlook looks uncertain and volatile due to US rate tightening. The US Fed is expected to continue raising rates through September, and we believe inflation and interest rate concerns may begin to subside by then. In the meantime, investors should focus on asset allocation. Due to the recent correction, valuations in several pockets of the market have become much more attractive than they were six months ago. We prefer large caps to small and mid caps at the moment. As part of the asset allocation process and based on our internal equity valuation model, we regularly increase our equity allocation across all of our asset allocation schemes.

Speaking of sectors, are you finding enough bottom fishing opportunities in banks and IT stocks?

Banks and automotive are the sectors that seem attractive. Both have gone through a difficult phase over the past four years and are now ready to take advantage of the opening of the economy. When it comes to tech companies, India’s IT sector is closely tracking US corporate earnings, which look weak for the next couple of quarters.

As we enter a new bullish phase, which sectors do you think will lead the next leg of the rally?

We believe that manufacturing as a sector should do well over the next decade. Domestic cyclicals like banks, autos, infrastructure, cement, capital goods could lead the next rally in our view. Rupee depreciation will also support export-oriented sectors like IT and pharmaceuticals.

What is your vision of gold? Why is it not efficient?
We are positive on gold and believe investors can consider a 10% allocation to gold ETFs/FoFs in their portfolio. Gold is considered a safe-haven asset class during economic downturns. It also performs well in an inflationary scenario. Over the past 15 years, global debt has soared to $300 trillion and global equity values ​​have risen sharply to $100 trillion. Meanwhile, total global gold is currently valued at $3 trillion, which is tiny compared to total global debt and equity levels. So even if there is a small global shift from debt/equity to gold, gold prices could significantly outperform.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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