'Beaten down sectors to fuel valuations this year'

In an interview with Outlook Money, Kailash Kulkarni, CEO, L&T Investment Management,  shares his views on the Indian economy, equity markets, investment cycle, and more. Excerpts: 

Where do you see the economy and markets going forward?

While the global economic scenario is rather glum, I believe domestically we could hope for a paced recovery.

The US too is somewhat better off, showing a growth range of 2 per cent. China, though, is experiencing a slowdown and its impact is being felt on the global trade and as well as currencies. Given weakening of the Chinese currency, we could see an impact on the overall global trade.

On the domestic front, we have had some good news on the twin deficits being under control and inflation much below the trend line. While the currency has remained stable in relative terms, we could see a depreciating bias. One of the main positives that we expect this year is the picking up of the investment cycle, which, if coupled with the capex and infrastructure investment, should give a major boost to our economy.

The government, most importantly, has been taking mammoth efforts in terms of labour reforms, GST and an overall focus on bringing about change. As more and more states embrace newer practices, we can expect the momentum to build up.

Overall, I expect earnings growth to be around 12-14 per cent this year which would largely be driven by beaten down sectors which bore brunt of the correction. Owing to the performance of large caps, valuations seem reasonable which have created opportunity to pick up stocks of sound and scalable businesses. As we see earnings growth coming back into the system, it should start reflecting in terms of prices.

What’s in store for investors looking for investing in equities?

Investors should consider equities and related products such as equity mutual funds with the aim to build wealth in the long term. It is also important for an investor to understand that he cannot time the markets and thus should consider investing through SIPs to ride the market ups and downs and average the cost of investment.

Apart from investing systematically, what is also important is to stay invested through market volatilities instead of withdrawing in panic. The key to earning more from the investment is holding it for the long term without letting short term fluctuations affect the process.

Any sectors/trends that you are bullish on?

This year is the year of stock picking and beaten down sectors proving their worth. Given the measures taken by the government, I expect the infrastructure sector to do well and within infrastructure, I expect roads, rail, defense, power transmission and probably logistics to see an improvement. Another area where we can expect to have a good upside in the next 3 to 5 years is building products. Overall, there are a lot of areas which show promising potential currently.

What would be your advice to investors?

An informed investor is a successful investor. One should build a long term portfolio with the intent to create wealth and not just profit from short term movements.

An investor’s first step should be determining his needs, goals and the time period to achieve those goals. Accordingly, an investment instrument(s) should be chosen based on the investor’s risk profile and return requirement. Almost all life goals such as marriage, child’s education, higher studies, retirement, etc., require planning and the first step to planning is to start early and be regular. Through mutual fund SIPs you can invest small amounts regularly towards a particular goal to be achieved in a specific time period.

The thumb rule for investing is just one – start early, invest systematically and stay invested!