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Insurance companies can be top theme of 2017: Hiren Ved, Alchemy Capital

Urban consumption will bounce back faster, rural consumption might need a little help and that's where we have to wait & watch, says the Alchemy Capital CIO.

ET Now|
Updated: Dec 16, 2016, 11.41 AM IST
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"One industry that has actually benefited from demonetisation is the financial services industry. We are seeing that hitherto people who were shying away from investing in equities are increasingly using this as an opportunity to allocate to equities"
"One industry that has actually benefited from demonetisation is the financial services industry. We are seeing that hitherto people who were shying away from investing in equities are increasingly using this as an opportunity to allocate to equities"
In a chat with ET Now, Hiren Ved, Director & CIO, Alchemy Capital, says it will be very important to see what January and February holds for us if they manage to improve the sentiment then I think things should be fine.

Edited excerpts:


What do you think the impact of the demonetisation exercise will be on the economy and markets?

It will be interesting to see what the government does post 31st December while demonetisation is a great step in terms of increasing the white economy in India and to get more digital but we have to understand that it cannot happen overnight.

It is a process and obviously this is a bold move and this has definitely shocked the economy in the short run. My sense is that if the government realises that to bring momentum back into the economy, it will have to focus on cutting tax rates and stimulating demand, the faster they do it the quicker the sentiment will improve.

It will be very important to see what January and February holds for us if they manage to improve the sentiment then I think things should be fine because domestic liquidity into equity markets is reasonably good.

In fact, one industry that has actually benefited from demonetisation is the financial services industry. We are seeing that hitherto people who were shying away from investing in equities are increasingly using this as an opportunity to allocate to equities and that trend is likely to enhance.

In the medium term, domestic flows will be strong but I am not too sure what happens immediately in the first quarter to international flows because the dollar continues to be strong. You might continue to see a kind of a tepid inflow profile from FIIs but the second half of the year could be pretty benign for global flows as well.

If the US continues to do well, you might see an overflow coming into India as well. Globally, what we have seen is a rally in value and India was not value, it was a favoured market, it was an overweight market. So in the initial phase, we may not get that much help from foreign flows but domestic flows will be very strong, according to me.

Post demonetisation, how have you changed your portfolio strategy? Have you changed your top three holdings?

We did trim a little bit of our financials but we still hold a core position. We use the opportunity because there was kneejerk reaction in several companies. So more than sector specific, if we like the particular name and there was a kneejerk reaction, initially we will use that opportunity to buy. So nothing will change dramatically. I think leadership will go back to companies that are well run.

What is the leadership of this market? Consumption was the leader of the market, but it is tired now. IT is lacking that punch, pharma looks like is in a bear market, industrials were never off the block.

If you look at 2016, some of the leadership was taken by the PSU banks. The private banks and NBFCs were also doing reasonably well. That leadership has been punctured at least in the short to medium term because of what has happened and there is some uncertainty around that. My sense is that this leadership albeit with the lag will go back to private financials because demonetisation is a big big boost to money coming into the financial sector away from physical assets like real estate and gold.


While we saw a temporary spike in real estate and gold sales, I do not think incrementally money is going to go there. Money is likely to come into either the debt markets and more importantly into the equity markets. So private financial companies which have a good distribution are likely to use the deposits that have come into the banking system to cross sell a lot of products to their customers. I think urban consumption will bounce back faster, rural consumption might need a little bit of help and that is where we have to wait and watch and see what the government does over the next two months.

Financials include everything from PSU banks to MFIs. Now you have historically liked NBFCs, you have owned names like Bajaj Finance, you have owned names like Bharat Financials are you still happy to own the good old NBFC names?

We are still happy to own. We have trimmed some of that holdings but we are still happy to hold financials. I think incrementally we are seeing some interesting opportunities in insurance I think that insurance penetration will after many years of flat to low growth in insurance starting from 2007-2008 was at its peak after that you had too much of regulatory oversight and then you had virtually the sector slowed down. Now that consolidation is happening in the sector so big players are merging into each other they are also raising capital so they are going IPO, so you will see some interesting opportunities in insurance and SBI insurance deal has also happened so I think you will start seeing that some of the big insurance companies have to be part of the index because they are large companies.

Your top theme for 2017 is actually bet on insurance companies…

Yes I would say…

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