Jaideep Arora, CEO, Sharekhan, has identified four themes that could help generate good returns for investors in 2018. In an interview to BusinessLine , he said he expects corporate earnings to revive strongly owing to a low base. Excerpts:
With the Gujarat election over, the focus now shifts to the Budget... What do you expect?
Though the BJP has retained power in Gujarat, looking at the analysis of trends in rural areas, we believe that the Budget is likely to focus on increasing spending on rural development schemes and initiatives to boost farm income. The other focus areas could be supporting exports and further increase allocation (public spending) on infra development in the absence of any meaningful revival in private investment in the immediate term.
Having said this, we expect the government to strike the right balance between fiscal prudence and populist measures in the forthcoming Union Budget.
Do you have any Budget wish-list for the industry?
We believe that the tax benefit on long-term capital gain should continue.
STT (Securities Transaction Tax) is still very high, and is resultantly affecting liquidity in the market. Also, we expect introduction of more tax benefits for investments in equities for the salaried class to increase their participation in the market. Additionally, simplification of the GST will support the service industry.
Given the elevated level of the market, which are the sectors that look promising in 2018? What is your overall outlook for equities?
In the coming months, corporate earnings are likely to revive strongly owing to low base and expected recovery in economic growth. Earnings of Sensex companies are expected to grow, aided by strong performance of the automobile, banking and energy sectors.
We have identified few structural growth themes that could aid investors. The themes are: financialisation, which means household savings moving to financial assets; formalisation — shift of market share from unorganised to organised players in fragmented segments; government expenditure on roads/ rail/ defence and affordable housing projects; and the evergreen consumption theme that has given multi-baggers regularly.
Going by these themes, the sectors that look attractive are insurance, AMC, NBFC, private sector banks, auto ancillary, footwear, building products, consumer electrical products, cement, steel, paints and housing finance companies.
Do you expect robust fund flow from domestic investors into the markets in 2018 too?
A substantial part of retail inflows are coming into equities through systematic investment plan which tend to be more stable in nature. Moreover, given the limited opportunities in other asset classes and relatively superior returns from equities in the next few years, we expect a fair share of household savings to flow into equities next year also.
How are things panning out in Sharekhan after the BNP Paribas takeover? Are you looking at acquisitions in the broking space?
The adaptation of practices has been quite smooth and we have set an ambitious development plan since the very beginning of the acquisition.
Currently, we are growing organically and are focused towards acquiring new customers and building new business lines such as mutual funds, insurance, loan against securities and adding new business partners.
With Robo Advisory ruling the roost in the investment industry, what is the scenario at Sharekhan? Are you also spending heavily on technology?
Sharekhan pioneered the online retail broking industry and leveraged on the first wave of digitisation in 2000. Technology is at the core of our strategy and we are all geared up to enhance in this field. We have already launched InstaMF — an online platform for investing in mutual funds, the Sharekhan mobile app and a new and improved website with better features.
We have also launched NEO — the robo advisor for mutual fund investors that help investors to plan and implement financial goals in a pre-determined time-frame. At Sharekhan, we aim to achieve 90 per cent digital transactions.