India is doing much better. We as a country have done many things right like digitisation, infrastructure development, clean-up of corporate and bank’s balance sheets. As a result today, the balance sheets of corporate India, banking sector and government are in a far superior position, which international investors are acknowledging and appreciating,” says Ravuri.
Edited interview.
PGIM India schemes started the year on top of the performance chart in 2022, but the performance slipped a bit as the year progressed. How do you see the year?
Tougher environment beginning this fiscal year in terms of geopolitical challenges, inflation and supply chain headwinds etc meant that our portfolios were impacted in the short term. However, corporate India continues to deliver decent performance, along with government focus on macro stability, which has ensured that India is a relatively safe haven in 2022. Thus with our portfolios positioned accordingly, we are quite confident of performing consistently over a longer timeframe.
Our investment style is driven by a strong process, and is focussed on growth at a reasonable price philosophy (GARP). The markets this financial year have seen rallies by certain segments, where we were underweight, across our portfolios. In the long term, we believe India being a growth-oriented economy and segments where we are overweight will resume leadership once again, as the macro-economic environment stabilizes, for example. sectors such as industrials led by future anticipated capex can be a beneficiary.
The stock market was very challenging in 2022. What’s your view? How did you navigate the year?
2022 was a challenging year, we entered the year with exuberance in IPO markets, strong corporate earnings and fading of covid. However, even before the economy could recover from covid, crisis in Ukraine and resultant disruptions, spike in inflation, brought in a different set of challenges for the economy. The stock market had to deal with the additional challenge of massive selling by FIIs and collapse of new-age economy stocks. We were cautious through the period by avoiding IPOs, sticking to companies with strong balance sheets and stable businesses.
The stock market continues to face a lot of challenges. How do you see the year?
The stock market will always have challenges or uncertainties, when everything is looking good for the economy and corporate India, valuations would become very expensive. To that extent, we as fund managers have learnt to live with challenges. Coming year is going to be interesting. Economy is doing relatively much better but we can’t be complacent as the trade deficit is precarious. Markets are trading at a marginal premium to historical valuations, so if corporate earnings growth rate deteriorates or negative global events come to pass, these can very easily translate into a sharp correction in domestic markets.
Recession and very high rates are threatening the global economy. How do you view these factors playing out in 2023?
Recession and higher rates are very much visible, now the key question is whether they are transitory or will last longer. Our global team expects things to start getting better from the end of 2023 onwards. In India, inflation and interest rates are close to the peak. These are very much under control but the key thing to watch out for is how demand pans out and likely impact on corporate earnings.
India is supposed to be doing better- what is your assessment?
Yes, India is doing much better. We as a country have done many things right like digitisation, infrastructure development, clean-up of corporate and bank’s balance sheets. As a result today, the balance sheets of corporate India, banking sector and government are in a far superior position, which international investors are acknowledging and appreciating.
Have you identified any emerging trends or themes that would dominate the market in 2023? How can investors capitalize on them?
Consumption, manufacturing and digitisation are themes that are likely to dominate in the next 3-5 years.
Overseas or international schemes facing rough weather. Even PGIM India schemes are down over 30%. What is your assessment about the scenario?
International markets have seen sharp correction, especially sectors like Technology and Growth stocks that have done well in the last ten years have seen sharp correction in stock prices and same has impacted performance of our funds. The PGIM-Jennison team believes in the secular growth style of investing and remains confident of this style delivering.
This Financial Year there has been an unwinding in terms of premium attached to growth stocks globally, however these companies where we are overweight, have a long runway for secular growth. Themes like automation, digitalization, enterprise technology, direct-to-consumer etc are megatrends and these continue to have a long runway for growth. Growth stocks generally tend to bottom out versus value stocks, soon after the first rate hike in the cycle, as per historical trends going back three decades. Expected earnings growth for FY23 for such stocks continue to be robust.
Budget is the next big event the market will start looking at in the new year. What are your expectations? Anything special for mutual funds?
The Budget is no longer a big event for stock markets as a) we are not expecting any big bang reforms or correction in tax rates b) government is not waiting for budget to announce major reform, it is willing to make necessary changes as and when needed, for example major cut in corporate tax rates were done outside the budget.
