Talking to ET Now, Manish Kumar, CIO, ICICI Prudential Life Insurance , says telecom is one sector which he believes is going to be entering into a multi-year bull run.
Edited excerpts:
A year ago, if anybody would have talked about buying into real estate stocks or metal stocks, it would have looked like a foolish idea. But the smart guys bought into real estate stocks. They have made money. The intelligent guys bought into metal stocks and they have hit a home run this year. Where do you think that kind of an opportunity exists currently where markets do not understand the potential of earning, where the selling is overdone and these businesses or these companies or sectors could come back?
One sector where we are really positive on and market has picked that cue in the last three months is telecom sector. We are positive on the new entrants as well as the incumbents. This is one sector which is going to really take off. In fact, we are seeing that it is going to be entering into a multi-year bull run as far as this sector is concerned because it is a sector which is offering too much value to its customers at the moment and at the right prices it is offering, you are likely to be making lot of money in this sector.
You continue to believe in the prospects of private sector banks. Do you not believe that there is a higher beta and higher chance to make larger sums of money in PSBs or some of the smaller private names which have not performed?
The way we look at the public sector banks is as a theme from death to life. There is scope for making a lot of money in some of the PSUs and that theme can tactically be played. We are open to playing such themes and we are also there in some of the large PSU banks. But those themes will happen may be once in five years, once in ten years. Structurally, once that theme has played, on a sustained basis it is difficult for these PSU banks to be annual compounders and given the nature of our business where an investor is coming to us for five years, ten years, fifteen years, you would want your portfolio to be invested largely in those annual compounders.
Have you bought insurance stocks this year because that is where there the real wealth creation or so called sector creation has happened?
We have made investments in some of the insurance companies and we are watching this space very closely.
You like ULIP or non-ULIP business?
Players which are listed and where we can invest, they are in both the businesses.
So there is no preference. Is there a preference towards general and life?
We are positive on both the spaces.
My next followup question would be that as an insurance investor, you have a mandate to think about. Not quarters, but years and you cannot buy into too much of mid and small cap stocks because that is not the area where you are comfortable in investing. What do you make of the rally which is going on the small and midcap stocks because that is where the returns are. Are you wondering that while you are buying large caps, they are not going higher but small and midcaps is where the party is?
Just because we are long-term investors does not prevent us from investing in midcaps and small caps if we really want to.
But these are below billion dollars!
No, we do invest. We have multiple kind of platforms. We do not right now have a pure midcap platform but we do have platforms which invest only in large caps and also in large caps and combination of midcaps or small caps. We have got flexi cap platforms. We have got platforms which are investing only in large caps. The platforms which invest in flexi caps, the sizable part of the portfolio there is also invested in midcaps and small caps and some of those portfolios have actually done quite well for us in the last one year.
Why are NBFCs an avoid for you?
It should also be looked in the context of our view on some of the economic stats going forward in the light of what is happening in the elections as well. We think that we are heading for a slightly higher fiscal deficit next two years. In that context, when the government is likely to be increasing MSPs more sharply than ever in the past, we think inflation is likely to be hovering between 4.5% and 5%.
So rate cuts are clearly ruled out. There is a small possibility of rate hike. As a consequence, 10-year bond yields are likely to be hovering between 7-7.25 per cent. There is a risk of it going to 7.5 per cent unlike in the last one year where the average 10-year bond yield has been about 6.7-6.8%. In this context, we believe financial franchises with high CASA or access to low cost deposits makes more sense as compared to NBFCs.
A bit of a contradictory view when it comes to cement because you are avoiding cement right now. At the same time, you are betting infrastructure. I would assume that these plays are interrelated somewhat.
Not entirely. There is a correlation but please understand that cement is driven much more by housing demand than by infrastructure demand. Infrastructure will contribute only to the extent of 20% and you would want to allocate your money in those themes which are likely to fire more or likely to be a direct derivative of government priorities. Cement is going to be driven more by housing demand and we all know that barring that affordable space which is still in terms of size probably 5-10% of the overall housing demand, it will catch up with a lag. So maybe next time when we are meeting, I may add cement in that list.
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