Rising geopolitical tensions and other global risk-off events can induce large corrections in the stock markets, but the rising cult of domestic equity investing, evident through pension, insurance and mutual funds, is absorbing foreign portfolio investor outflows and resulting in quick and sharp recoveries from the lows, according to Subhasis Ghosh, chief executive officer at Kotak Mahindra Pension Fund.
Ghosh expects earnings growth improvement from the second half of the current fiscal as the impact of policy rate cuts and GST rationalization works its way through the economy.
Edited excerpts:
GST has been rationalized to leave more in the hands of the common man. Do you think this will move the needle or will earnings overhang and selling by foreign portfolio investors (FPIs) amid tariff tensions preclude a tear-away rally?
The GST move should be seen as a more structural realignment of rates. Apart from the near-term sentiment boost, we expect it to boost overall growth, with a pick-up in the formalization of the economy. FPI selling has been persisting for some time; however, domestic flows have more than offset it. Overall, we remain constructive on the GST cut, combined with central bank actions (rate cuts and easing of cash reserve requirement) taken in recent times.
Read more: GST 2.0 reshapes retail fashion: Value brands surge, premium feels the pinch
The Nifty corporate earnings growth, though better than expected, still came in single digits. Do you think earnings growth has bottomed out?
Corporate earnings have been impacted by multiple domestic and global factors, such as border conflict, tariff uncertainty and weak rural sentiments. Based on the broader economic indicators and management commentary, we can expect another quarter of weakness before earnings start to improve.
GDP growth was healthy in Q1, way ahead of RBI estimates of 6.5%. But the nominal growth was at a multi-quarter low of 8.8%. Could that impinge on big corporate earnings?
The real GDP was boosted by broad-based growth in agriculture, finance, defence and services. Subdued nominal GDP growth was largely in line with expectations, considering an early monsoon, border conflict and low deflator.
Overall, we feel that stock selection would be the alpha generator over sector selection over the coming period.
Against the earnings and geopolitical backdrop, which sectors attract you and which ones will you avoid?
We remain constructive on banks, energy, auto and consumer tech, while we remain cautious on cyclical and export-driven sectors. Overall, we feel that stock selection would be the alpha generator over sector selection over the coming period.
Read more: Mint Explainer | What’s behind Jane Street’s SAT appeal against Sebi in the index manipulation case
RBI said it will support growth because of low inflation, and the government will provide some kind of assistance to the tariff-impacted sectors. Do you think this will be sufficient?
The sectors directly impacted by the said tariff within the investible universe of NPS (National Pension Scheme) are small; their impact on consumption and employment would be a key monitorable. The government is likely to take action to support them. However, it would be difficult to assess the situation.
In the past year or so, we have seen relentless FPI selling and even significant promoter exits. This is being absorbed by domestic institutions, primarily mutual funds. Do you worry that retail might be left holding the can in case of global risk-off?
Over the year, our equity markets have evolved into mature markets with domestic players standing tall amid all the volatility. The market impact of FPI selling has been diminishing over the years, and we view it as a healthy sign of improving depth of Indian equity markets. Any global risk-off events can always bring in large corrections. However, the retracement from them has been quick and sharp in recent times.
The SIP book has been expanding, which is a reflection of increasing overall financial awareness and savings culture building in India.
So much investor money comes in through the sticky systematic investment plan (SIP) route. Are you fully invested or sitting on cash? If so, is this more or less than average?
The SIP book has been expanding, which is a reflection of increasing overall financial awareness and savings culture building in India. This has helped lower the average volatility of our equity markets. Apart from maintaining tactical cash for rebalancing of portfolio, not more than 4% of the AUM (assets under management), we, as a philosophy, don’t take aggressive cash calls. It is difficult to gauge markets in the near term and we remain invested in the ideas and focus on the medium to long term.
Read more: GST rate cut fuels consumption rally as investors bet on autos, durables, and FMCG
Private capex is still not reaching the desired levels, and the government is still doing the heavy lifting. Do you see any change?
While overall private capex might not have picked up meaningfully, a few sectors have seen capex picking up, such as energy and electronics manufacturing on the back of production-linked incentive (PLI) schemes, other incentives and global supply chain diversification.
Some feel that with urban demand being lacklustre, rural demand will pick up. Are you seeing that happen?
Macro-economic indicators such as two-wheeler, tractors and fertilizer sales are improving for the last couple of months. Even rural inflation exceeds urban inflation consistently. Corporate commentary by staples companies also suggests that there has been an uptick in sentiment in recent months, after a weak pulse over the last year. Urban India has been lagging due to credit-tightening measures by RBI (Reserve Bank of India). Overall, we are coming out of a lacklustre period of demand with multiple tailwinds such as 100 bps (basis points) cut in policy rate in 2025, CRR (cash reserve ratio) cut by 100 bps, a good monsoon, GST rate cut and the festive season. We remain optimistic on the recovery in demand.
On the NPS, how much has your AUM increased and what’s your ranking among peers? Are you seeing more private contributions to NPS?
Our AUM has grown by 41% annualised in this financial year. We are now the fourth largest in terms of AUM among the private sector pension fund managers. It does seem from the evidence that we have that more and more subscribers from the non-governmental sectors are taking to NPS, particularly through the corporate route.
Read more: Lingering demand and margin woes keep home décor stocks out of vogue
