GST, corporate earnings to be key triggers for markets: Sanjay Kumar, PNB Metlife

Timely GST implementation, stance of the new Monetary Policy Committee and continued improvement in corporate earnings are the key triggers for equity markets, said Sanjay Kumar, CIO, PNB Metlife, in an interview with Shilpy Sinha. He said any surprise at the FOMC meeting may negatively impact foreign portfolio inflows, thereby hurting the risk-on rally in emerging markets, including India.

ET: Where do you see the Sensex by March end?
Sanjay Kumar: Global risk-on environment amid ample liquidity has been driving emerging market equities higher. India has been no exception with equity markets rallying more than 20% since February lows. Domestic cues have been supportive with strong reform momentum, normal monsoon and gradual improvement in corporate earnings. India's macro-economic environment has also been conducive with declining interest rates, comfortable inflation and stable currency. We expect corporate earnings to improve over the coming quarters led by improvement in consumption demand in the wake of the Seventh Pay Commission awards and a normal monsoon and decline in interest costs. This, along with improving macro-economic fundamentals and sustained foreign portfolio inflow, is likely to keep the momentum in equity markets strong.

ET: When do you expect private investments to pick up?
Sanjay Kumar: Private sector investment activity has slowed down over the last couple of years. This has been due to huge capacity addition over previous years, weak global as well as domestic demand, excessive leverage on corporate balance sheets and low capacity utilisation. While global demand is expected to remain weak, pick-up in domestic demand is crucial for capacity utilisation levels to rise.

This, along with deleveraging of balance sheets, is required for private investments to pick up in a meaningful manner. This looks at least a couple of years away. Also resolution of banking sector stress and recapitalising public sector banks is necessary to prepare them for credit growth by private sector.

ET: What would be the next big triggers for the market?
Sanjay Kumar: The upcoming FOMC meeting remains the major global trigger for equity markets in the near-term. While consensus view points to status quo, any surprise is likely to negatively impact foreign portfolio inflows, thereby hurting the risk-on rally in emerging markets, including India.On the domestic front, timely GST implementation, stance of the new Monetary Policy Committee and continued improvement in corporate earnings remain key triggers for equity markets.

ET: Which are the sectors that you are looking to invest in?
Sanjay Kumar: We expect consumption to pickup gradually led by Seventh Pay Commission implementation and revival in rural demand on account of normal monsoon. We are positive on consumer-focused sectors such as automobiles, consumer discretionary, NBFCs and retailfocused private banks. We are also positive on cement sector given the government's commitment to infrastructure, low-cost housing and gradual improvement in rural demand. We have a positive stance on oil marketing companies on account of improvement in marketing margins, reduced working capital requirement and falling interest costs.We are constructive on gas sector as well given government's strong thrust on improving penetration of natural gas for commercial and household use.

ET: What expectations does market have from the new RBI governor?
Sanjay Kumar: Given that Dr Urjit Patel had served as deputy governor over last three years and was the architect of new monetary policy framework, the market expects continuity of current monetary policy approach under his leadership. His immediate chal lenge will be to ensure smooth redemption of FCNR (B) deposits while minimising currency volatility. The market would await his approach to resolv ing banking sector stress.