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    Rural economy, quasi financials emerge as investment themes for 2017

    Synopsis

    In the next couple of years, rural India can surprise on the upside. A lot of people will benefit from it, says SBI MF’s Navneet Munot

    ET Now
    In a chat with ET Now, Navneet Munot, CIO, SBI Mutual Fund, Nilesh Shah, MD, Kotak AMC, Sunil Singhania, CIO – Equity Investments, Reliance MF and Dharmesh Mehta, Axis Capital discuss the state of the market and identify themes for investors.

    Edited excerpts:

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    Navneet Munot: Next couple of years if you look at the overall rural economy, it is not about one good monsoon, there could be another good monsoon next year. But structurally, more investments are likely in rural India -- more roads, more electricity, more money in irrigation. You are connecting them digitally at a pace which has never happened. You are connecting them financially which has never happened. The focus of the government -- whether it is central or the state government -- the amount of money which will go in their hands over the next couple of years and the fact there is no tax on agriculture.

    In the next couple of years, rural India can surprise on the upside. A lot of people will benefit from it. Second, there is a huge attention by the government but even otherwise, every HNI in India would have some investment in land which have been highly liquid.

    What will people do with that land? A large number of people will put up some affordable housing. The income is going to be tax-free. There is also a huge latent demand at a lower price point. With the subvention, mortgage rates will go below 9% for the second time in history. There is likelt to be a huge boom in affordable housing. I hope that you get more sops and that automatically revive lot of consumption.

    ET Now: What is your assessment of the market and why do you think this market has really managed to climb the wall of worry? With this kind of news flow, market should be down. We are up.

    Nilesh Shah: So in the month of November, we collected as much money in our equity fund as we used to collect some time back in an entire year and that will be the case with most of my colleagues. The domestic flows are fairly strong. From 8th November till whatever was the date for which this data was published, FIIs sold about Rs 26,000 crore and domestic mutual funds bought Rs 23,000 crore. So if markets have not crashed, the credit should go to the retail investors who have kept their faith in economy, on fund manamgent and who have kept on pouring money into our equity funds.

    Domestic participation is the reason why the market is where it is today and not lower and the best part about domestic participation is that maximum flows have come in November 2016 when markets had corrected.

    There were periods where in a falling market people used to redeem and in a rising market people used to give us money. Now it is the reverse way, in a falling market we are getting money, there cannot be a better time to invest then in a falling market and majority of the moneys is coming through systematic investment plan (SIP) or systematic transfer plan. There are roughly about 1.2 crores Indians who are giving Rs 4000 crore a month to systematic investment plan to domestic mutual funds and my guess is that we are probably getting thousand odd crores through systematic transfer plan. That is Rs 5000 crore a month, Rs 60,000 crore a year on a recurring basis and obviously we do some work to get lump sum money as well. So this is domestic participation which is supporting market today.

    ET Now: You have managed to identify big mega trends. We had a conversation in 2010. You were right up there in pharma,. You were able to identify agri as a theme. UPL has been one of your large holdings, I noticed that there are gold NBFCs which are there in your portfolio, so where are you allocating capital disproportionately? What could be a trend in making, a theme in buying where you think good returns could be made in the next three to five years?

    Sunil Singhania: Most of the themes have been spoken to but one micro theme within the financials is we are selectively moving away from banks into quasi financials. It is still very early days but we believe that asset management companies, life insurance companies, wealth managers would gain disproportionately.

    There is a move from people to move away from physical assets to financial assets. This is one sector which is consolidating. If you just look at banks and then life insurance/asset management companies, banks constantly need capital, insurance companies and asset management companies have started giving back capital.

    More and more banks are coming in, more licenses being issued; there is consolidation in life insurance companies and asset management companies. The bigger guys are buying over the smaller guys.

    In banks in particular there can be a lot of disruption out of technology, in life insurance companies and asset management companies there might be disruption in distribution on the management side there is no disruption. So, eventually if you look at from a 5-10 years perspective, you can make a case of 15% plus growth year-after-year for life insurance companies and asset management companies.

    For banks as a whole, it might become a little difficult. So we are selectively moving to this category which will benefit out of more demand for financial savings. Maybe that can be one trend or theme for days to come.

    ET Now: Are markets prepared for a change in taxation structure? Enough has been discussed that long term and short term definition could be changed. If anything is changed at the taxation structure from a capital standpoint, what could be the market reaction?

    Dharmesh Mehta: It all depends on what do they give against what they take. You cannot look at at one instance saying that if the long term capital gains is extended to three years instead of one year but against that if your personal tax is cut by 5% then what happens?

    Majority of the income in India is more of your own salary or the tax you are paying on the personal tax because the number of investors in the stock market are very minimal. Plus, a lot of them are now coming through mutual funds and they may not be taxed.

    I believe if he is giving me much more on my personal tax I will be okay to get more tax rate maybe on the long term or the short term.



    ( Originally published on Jan 17, 2017 )
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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