Mr. Rahul Singh

Chief Investment Officer (CIO) – Equities, Tata Asset Management

With over 27 years of investment experience, Rahul Singh joined Tata Asset Management in October 2018 as CIO-Equities, leading the fund management and equity research teams.

In his previous role at Ampersand Capital Investment Advisors LLP, Rahul was the Managing Partner. He has also worked with many reputed financial institutions like Standard Chartered Securities and Citigroup Global Markets India as Head of Equity Research.

Rahul is a Bachelor of Technology in Mechanical Engineering from IIT Bombay and an alumnus of IIM Lucknow where he pursued his Master of Business Administration in Finance and Financial Management Services.

Q1. India's economic story looks promising with a projected GDP growth of 7.6%. How do you view India as an investment destination compared to other emerging markets?
Post immediate reaction of the equity markets to the Loksabha elections 2024 result, the medium to long term views on Indian equity market are expected to be robust. The Indian market is expected to have stable macros, strong earnings which would drive return. The market is expected to be more balanced, disciplined, strong and stock specific. This is expected to be supportive of bottom-up stock picking.

From a valuation front, valuation expansion is expected to normalize. Large cap is looking much better in terms of risk reward equation, compared to mid and small caps as large caps are lying at the lower end of 3rd quartile or 4th quartile in terms of performance.

Overall, India as an investment destination seems to be in a good shape.

Q2. Which sectors do you believe will attract or lose foreign institutional investors (FII) interest in the near term?

Considering the FII outflow as multi-year-high, in near term especially post election results, FII comeback is very unlikely unless market falls 5-7%. It's very difficult to expect them to come back in near term. The foreign flow is expected to be weak this year.

Q3. What is your outlook for Q1 FY25 earnings and sectoral performances across various sectors? Do you believe Q1 results will be better compared to what we saw in Q4 of FY24?

Indian markets are favorably placed on a global stage as India is one of the fastest growing large economy. The macro-economic factors remain strong and positive for the India-story with a capex cycle upturn. The earning growth continues.

Q1 FY25 result is expected to be better compared to what we saw in Q4 of FY24.

Sector performances :

Banking & financial - The Indian banking sector continues to remain in good health with an expectation of robust loan growth and healthy asset quality due to historically lower NPAs. This is expected to drive strong profitability growth trends in the coming years

Consumption- consumption is expected to get a boost led by enhanced government focus on welfare programs and rural spending. Consumer staple is likely to raise on rural support. There is likely to be more money made available, and taxations may get slightly tweaked to reduce the burden on common man.

Power, oil & gas- In a long-run, power or energy sufficiency will be the priority. Focus on renewable energy is likely to continue. In oil & gas sector, more exploration and drilling activities is expected to continue in order to meet higher demand and usage for natural gas & oil. Overall, We feel that there shouldn’t be any major change in stance plot.

Infrastructure - Valuations within the sectors seem overvalued and present a decent amount of risk. We continue to be incrementally cautious for the same. It is expected a slowdown in growth of government capex while private sector CapEx expected to pick up in order to compensate for the same.

Pharmaceutical – There is no major impact of election on pharma sector. The sector remains structurally positive.

Q4. Which are the top three themes on your radar for FY25 and why?

In the long run for FY25, Banking and Pharma sectors are expected to perform in the background of current valuations and expected growth trajectory. Due to coalition government, a little bit of focus is expected to come into rural economy, hence the consumer sector.

Q5. How frequently do you churn your portfolio and Why? What are the recent changes you have made in the portfolio?

The GARP (Growth at reasonable price) based valuation discipline which we have been maintaining across our funds, is expected to work now considering the current market scenario. Also across our funds, we had already started collecting our portfolio towards pharma and banking space. Banking and pharma is something which is coming out of our GARP philosophy. we will use this card to our advantage in a market like this because it's going to be a stock pickers market.

Q6. Do you think that in the current scenario it is the large caps that present a good tactical positioning versus the mid and the smallcaps?

Yes, Large cap is looking much more better in terms of risk reward and within large cap banking, pharma and consumer sectors are expected to do well. Midcap and small cap valuation is expected to go down while large cap valuation would go up, hence there will be a balance across market caps. More alpha can be expected in large cap space.

Mr. Murthy Nagarajan

Head - Fixed Income, Tata Asset Management

Murthy Nagarajan is the Head of Fixed Income at Tata Asset Management.

With an expertise spanning decades in the debt market, Murthy brings in a rich and valuable industry experience of more than 25 years in the financial services space.

Prior to his appointment at Tata Asset Management, Murthy was working with Quantum AMC. He was also associated with Mirae Asset Global Investment India Ltd in the Investment Department as the Head of Fixed Income for more than two years.

Murthy holds a Master of Commerce degree and has completed his PGDBA from Somaiya Institute of Management & Research.

Q1. What is your current assessment of the bond market, both globally and domestically? Are there any specific sectors or types of bonds you believe present significant opportunities right now?

Even though the next move in rates is cut globally, there is divergence in global rates with Bank of Canada and ECB cutting rates. US Federal Reserve and Reserve Bank of India resolute to bring down CPI inflation to their targets of 2 and 4 percent respectively.

Rate cuts is not expected in India during the calendar year. However, the increased demand and lower supply is expected to drive down interest rates, even without any rate cuts.

The estimates of the Indian Metrological Department is of normal monsoon which should cool down CPI inflation in the second half of the fiscal year. Inflation in food items is expected to moderate in the coming months if normal monsoon pan out.

The Bond market rallied due to RBI dividend payment of Rs 2.11 Lakh Crores. This amount is Rs 1.30 Lakh crores excess than what is budgeted in the interim Budget. This excess amount received by the Government is 0.37 percent of GDP.

Corporate bonds spread have fallen to historical low due to lower supply and high demand from end investors. In this scenario, Government Securities present better capital appreciation opportunities compared with corporate bonds.

Q2. In May 2024, yields on Indian government bonds (IGBs) fell by 12-15 basis points (bps). What could be the possible reasons?

1. US yields have fallen as unemployment rate moved towards 3.9 levels and

2. April non-farm payroll indicated moderation in economic activity, are the two possible reasons for IGB fall.

3. RBI dividend of Rs 2.11 Lakhs Crore, which is excess of Rs 130 Lakhs Crore should lead to lower borrowing in the current year.

Q3. It is expected that in the upcoming RBI MPC meeting on June 7, 2024, the RBI will maintain its current rate stance. What are your views on it?

On June 7, 2024, RBI Monetary policy is largely on expected lines, with no change in stance or policy rates. Continued focus to get inflation within target zone on sustainable basis, thereby indicating no near term likelihood of policy easing. MPC voted with a 4-2 majority to keep key rates unchanged (Repo Rate at 6.50%, SDF rate at 6.25% and MSF rate at 6.75%). MPC decided with a 4-2 majority to maintain stance as withdrawal of accommodation. RBI has indicated nimble systemic liquidity management on an on-going basis, with an objective of keeping overnight operating rate (WACR) aligned with stance of policy.

Q4. What risk management practices are you implementing to protect fixed-income portfolios in uncertain times?

We follow the SLR process, that is safety ,liquidity and subsequently returns when managing the fixed Income Portfolio. Our internal credit evaluation process is a objective stand alone process which is scaled down by corporate governance factor. Our rating is dynamic as we incorporate early warning signals in our model. Our rating transition is faster than the credit rating agencies which allows us to stay ahead of the curve in terms of downgrades or upgrades.

Q5. Most of the liquid funds have delivered 7% plus returns in the last 1 year. What made these funds deliver such returns?

Short end yield remained quite elevated last year due to tight liquidity condition and high credit growth. Credit growth continue to be robust with incremental credit growth higher than 100 percent for the last two years. Frictional liquidity due to high government balance and RBI keeping banking system liquidity in deficit to control Inflation has led to yield curve flatness , with the short end of the yield curve trading 75 to 100 basis points over the operating rate of 6.50. This has led to liquid fund generating returns above 7 percent levels.

Q6. Active debt funds garnered nearly Rs. 66,000 crore in net inflows in April, most at least since December 2020. What are the probable reasons for the surge in investor interest?

Debt fund flows increased due to corporate and banks investments during the start of the financial year due to expectation of rate cuts in US and India. This flow has come down in the subsequent month as both the Federal Reserve and RBI has indicated there focus to bring CPI inflation to target levels of 2 and 4 percent. RBI has upped its GDP growth forecast to 7.2 percent against 7 percent indicated earlier.

Mr. Dhawal Dalal

Chief Investment Officer - Fixed Income

With over 20 years of experience and an MBA from University of Dallas (USA), meet our CIO of Fixed Income Asset - Mr Dhawal Dalal.

Dhawal has joined Edelweiss Asset Management Limited in the year 2016. He is responsible for the overall growth of fixed income assets through a healthy mix of retail and institutional clients.

When not occupied with work, he loves reading on emerging trends in the global markets, geo-political developments and books on behavioural trends. He’s also a movie buff and never misses a chance to watch a blockbuster with his near and dear ones. A humble and learned person, he strongly believes that every individual should have a sense of purpose in life!

Before joining Edelweiss Asset Management Limited, he was the head of Fixed Income at DSP Black Rock Investment Managers Private Limited and led a team of Fund Managers managing fixed income assets. His role there was to expedite overall growth of fixed income assets, performance and client interactions.

Q1. Should geopolitical tensions intensify, there could be repercussions on crude oil prices, making inflation a significant concern for investors. What rate trajectory do you anticipate from the US Federal Reserve and the Reserve Bank of India (RBI) in FY25?

Ans: Our base case for crude oil prices to settle between $75 to $80 per barrel in FY25. That said, India’s continued purchase of cheap Russian oil and its settlement in non-USD currency is quite beneficial for India’s FX reserves and overall inflation outlook. We continue to expect average CPI to be around 4.5% in FY25 as indicated by the RBI. If there is any potential uptick in average inflation, it may come from food prices, in our view.

On rate cuts, we believe that the Fed wants to cut rates and are optimistic that the US economy will mend in the way that will allow FOMC to cut rates in CY24 by at least two times, if not three. At the same time, RBI will also look to reduce policy rates in the second half of FY25 after gaining confidence on the trajectory of monsoon and its impact on food prices. We anticipate two cuts in Repo Rate to 6% in FY25.

Q2. SEBI has been making efforts to stimulate activity in the NCD market. Would decreasing the minimum investment size in NCDs to Rs. 10,000 potentially appeal to a broader base of retail investors?

Ans: Absolutely. We believe this is a step in the right direction. That said, more changes need to be made for investor education and investor awareness towards the bond market.

Q3. As per AMFI annual report 2024, the debt category saw a marginal gain in folios in fiscal 2024, after degrowth in the previous two fiscals. Do you see the investors retaining confidence in the segment?

Ans: At present, most investors are focused on arbitrage funds given their attractive monthly returns and lower tax profile as compared to investment in bonds funds which are now taxed at marginal tax rates. Plus, bullish equity markets are also playing their role in higher equity allocation by bond market investors.

We believe that investors will consider bond market and will appreciate its relative stability only when there is an extended downturn in equity markets.

Q4. After positive inflows in Jan and Feb, we saw around Rs. 1.98 lakh crore of outflows in the debt funds in the month of March, with most of it in the liquid category. What could be the trigger points for it?

Ans: Outflows from fixed income funds in the month of March is always seasonal. This outflows is temporary and is reversed in April first-half itself. That said, this year was a bit different due to national elections and consequent implementation of model code of conduct leading to slower government spending in the new financial year. This has led to continued tightness in the banking system liquidity and money markets.

Q5. In FY24, the Indian fixed income markets demonstrated relative stability, particularly in contrast to the high volatility witnessed in the debt markets of the US and other advanced economies. What are your expectations from FY25?

Ans: We expect IGBs to exhibit relatively lower volatility as compared to UST in FY25. This is primarily due to the fact that macro-economic landscape is relatively stable in India as compared to US where inflation and unemployment data continue to surprise market participants with its resilience and going against the Fed pivot in December 2023.

At the same time, inflation in India is relatively well-behaved and likely to trend lower in Q2 and Q3 of CY24 due to base effect and other factors.

Further, we expect ~$20 billion of FPI inflows in FAR bonds over the next ten months starting June 2024. This should provide a ready bid for the IGBs from FPIs.

The INR has also been relatively stable and well-behaved against the USD YTD among Asian peers.

All these have contributed to relative stability in the prices of IGB as compared to UST so far. We hope this trend will continue for the rest of the year as well.

Risk to our view may come from unexpected outcome from national election results and / or sudden spurt in geopolitical risk.