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CIO's views

CIO's views

Dear Policyholder,

Investors remained risk averse globally, even as the US Federal Reserve shied away from the beginning of tighter interest rates. Economic slowdown in China and weak growth across Europe and many commodity –driven Emerging Markets were other concern areas. Thus global equity markets remained weak. However, the quarter was positive for bonds, as commodity prices corrected and investor sought ‘safe havens’. Devaluation of the Yuan by 3% in early August hurt sentiment as it led to fears of “currency wars” within developing countries.

The U.S. Federal Reserve’s stance on interest rates will still remain the key near-term factor to watch out for and the recent consensus is gravitating towards a rate hike at the next meeting in December. For some time we have been in a phase where markets read "good economic news as bad news for the markets", as the probability of continuing loose money policies reduces with good news. This time may be different as global commodity prices have fallen quite a bit and consumers of commodities have significant advantages compared to the past. Global Equity markets should not fall substantially from current levels though they are likely to remain volatile.

India remains best positioned among Emerging Markets, with a favorable macro-economic construct as evidenced by a jump in tax collections, commitment to meet the lower fiscal deficit target , lower current account deficits, improving trend of IIP and core sector growth as well as moderating inflation. India’s second quarter GDP growth of 7% was the best among developing countries of comparable size. While a meaningful pick-up in investments led by private corporate investments will take some more time, we believe policy efforts to boost public capital expenditure should start showing results in the next few quarters. The Reserve Bank of India has kept real interest rates positive which means that it has sufficient room to cut rates in case inflation remains moderate. We believe that the outlook for financial assets will remain lucrative and household allocation to equities will increase in the coming years.

In our investment strategy, we believe that economic growth will accelerate over the medium-term and equity investments will outperform other asset classes. There are also ample stock-picking opportunities within the large Indian equity universe.

In our portfolios, we prefer Industrials, Retail Banks, Refiners and Gas traders and selected Automobile stocks. We are underweight on Materials, Telecom, Consumer Staples, Utilities and Pharmaceuticals. We have identified sectors that are likely to be growth leaders; for example road-building, railways, auto, auto-part suppliers, defense, private banks, multiplexes etc. and are well-positioned in these segments.

In the near term, the Winter Session of the Parliament and imminent rate tightening by the US Fed will set the tone for the markets. While there is no denying that a weak commodity cycle is favorable for India, a strengthening dollar may have consequences on capital flows, the exchange rate and consequently monetary policy. The long term outlook for the equity markets remains positive.

In the fixed income markets, yields have fallen over the past 3 months, with 10-year benchmark Govt. bond at 7.6% as compared to 7.85% in the June quarter. Benign inflation, fiscal deficit, moderate pace of economic growth and low current account deficits bodes well for lower interest rates in the coming quarters. While food inflation may surprise on the upside, overall CPI is expected to remain range-bound and we expect yields to fall over the next one year due to favorable macro economic factors.


With warm regards
Mihir Vora
CIO, Max Life Insurance.

Did you Know?

Our aggregate Traditional portfolio witnessed a growth of 34.51%, and overall portfolio grew by 25% over the last one year till June 2014