Here’s why this investment manager is bullish on real estate

Sachin Bajaj, executive vice president and head of investments, Max Life Insurance Company, said the real estate sector is in the midst of a multi-year virtuous cycle due to debt reduction and corporate governance. Ta.

Mr Bajaj, who has over 20 years of experience in fund management and banking, said: money control He said in an interview that the stability in oil prices after Iran’s attack on Israel shows that although the geopolitical risk premium has been priced in, risks from further escalation remain. Ta. Edited excerpt:

Do you think the West Asia crisis is not a big risk to the market and most news is priced in?

Following last weekend’s developments, there was limited impact on the market last Monday. During this period, oil prices did not have a negative impact on Iran’s attack on Israel. This suggests that a large portion of the geopolitical risk premium has already been priced in.

Key players in the Middle East understand that the costs of escalating conflict outweigh the potential benefits. Therefore, we do not expect an extreme market reaction to the current situation in the Middle East. However, the risk of further escalation remains. If that happens, the market will likely react negatively.

What are the key risks to the market?

Robust growth data and rising inflation have made global central banks cautious, which could mean a delay in cutting interest rates this year. Furthermore, if the global geopolitical scenario worsens, such as the escalating conflict between Israel and Iran, market sentiment could weaken. Higher oil prices and a possible rise in other commodity prices will start to reduce profit margins, leading to higher inflation and further delaying rate cuts.

A reversal in FPI flows due to a rising dollar index and global risk-off trades will also be a further constraint. The monsoon is also an important factor to watch for rural consumption recovery.

Should you still distance yourself from export-related companies, or is it time to add more?

India is gradually emerging as a manufacturing hub for various industries. We benefit from both China plus one and Europe plus one strategies adopted by global companies. This is a long-term structural change in global supply chains and is unlikely to be affected by short-term fluctuations.

Therefore, Indian companies are also investing in improving their human capital, technological know-how and manufacturing capabilities. In the long run, this should create value for shareholders.

Do you think large caps can outperform mid and small caps in FY25 as some experts have said?

While Nifty rose 29% in FY24, midcap and smallcap indices rose 60% and 70%, respectively. After such significant outperformance, short-term volatility in mid- and small-cap stocks and the possibility of a mean reversal to large-cap stocks cannot be ruled out.

Small-cap stocks can be avoided when valuations far exceed fundamentals and earnings prospects are limited. However, there are also many small and mid-cap stocks with strong business profiles, attractive industry presence and good corporate governance. You can continue investing from a long-term perspective.

Are you increasing your exposure to the real estate sector?

Real estate was one of the best performing sectors last year. Over the past few years, balance sheet debt levels have declined and corporate governance has improved. The regulatory environment has also become more favorable from an ease of doing business perspective.

We believe real estate is in the midst of a multi-year upcycle. We are positive about this sector and continue to include real estate companies in our portfolio.

Is rural demand expected to return strongly in H2 FY25? Is now the right time to bet on the FMCG space?

Rural demand is starting to show early signs of recovery. While consumer discretionary demand has held up relatively well, essential goods are showing signs of demand pressure. Complete recovery is influenced by various factors.

The amount and distribution of the monsoon across India will play an important role. Also, rising oil prices and other commodity prices will make it difficult for FMCG companies to pass on price benefits to demand growth. Investors can continue to invest in high-quality companies with strong balance sheets, strong earnings growth, and good corporate governance.

Disclaimer: The views and investment tips expressed by investment professionals on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified professionals before making any investment decisions.