It’s been a great year for the equity and debt markets. Will the momentum sustain? We asked Manish Kumar, Executive Vice-President, ICICI Prudential Life Insurance Company. Edited excerpts:

Has the market run ahead of itself or is the optimism justified?

We believe the current market valuations are pricing in the earnings for the next two financial years.

This is on the assumption that the economic cycle would revive, followed by a higher GDP growth in the coming years, on the back of an economic revival.

What government reforms do you expect in the coming six to 12 months?

Quite a few reforms have taken place in the last six months.

Addressing concerns related to the implementation of GST across states, auctioning of coal blocks and telecom spectrum, proposed amendments in the land acquisition Bill, and fiscal prudence could be a part of the next set of reforms.

What impact do you see on foreign fund flows from likely rate hike in the US next year?

The interest rate increase in the US expected some time by mid-2015 would definitely have some consequences on the global flows. However, we believe the economic stimulus in Japan and the Euro Zone is likely to offset the concerns surrounding the liquidity flows to emerging markets. Moreover, with India being an attractive and preferred investment destination, compared to other emerging markets, the impact from the rate hike in the US is expected to be minimal.

Additionally, we also expect the overall domestic financial savings to improve, which would augment the flows in the capital markets over the next few years.

Which sectors are you now betting on?

With the global commodity and oil prices falling in the recent past, we expect inflation to further trend downwards, which would then be followed by lower interest rates over the coming months. Therefore, we are quite positive on the interest rate cyclical sectors, especially on autos and private sector banks. We are also positive on the telecom sector as we expect higher earnings growth.

Mining and power are still in big trouble. What will be the impact on economic growth?

We believe that once the government initiates steps in these sectors, it would be reflected in higher GDP growth in the coming years.

We expect GDP growth at 5.5 per cent and 6.5 per cent for FY15 and FY16, respectively.

What is your strategy on debt?

We believe interest rates should fall in the next few months, and, therefore, we are maintaining a higher duration in the debt funds as compared to the benchmark.

ULIPs have been making a comeback. But most financial planners advise keeping insurance and investment separate. What is your take on this?

It’s a myth that a combination of life insurance and investments is not a good solution. Our current ULIP product offerings have a low-cost structure. This makes it a more compelling and attractive proposition for those individuals who have a long-term investment horizon. Let’s not forget the fact that ULIPs also offer tax benefits.

What is the track record of the funds of ICICI Prudential Life Insurance?

Life insurance is a long-term product. To be able to maximise the benefits from a ULIP, one needs to remain invested for the entire policy term. In the five-year time period (from October 2009 to October 2014), about 90 per cent of our funds have outperformed their benchmarks.

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