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Insurer’s stock fund picks infrastructure over consumption

Govt plans to spend about Rs 1.6 lakh crore on transportation infrastructure this year.

Bloomberg|
Jul 22, 2019, 09.16 AM IST
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As per the latest Economic Survey, India needs $4.5 trillion to be spent on infrastructure developments over the next 25 years of which it will be able to garner $3.9 trillion.
By Ameya Karve and John Xavier

As India’s consumer spending slows down after a multiyear boom, one life insurer is betting on the nation’s plans to upgrade its infrastructure.

“Investment is a better way to revive the economy, not consumption,” said Hemant Kanawala, head of equities at Kotak Mahindra Life Insurance Co. in Mumbai. “Jobs will be created only if investments pick up, and that will boost consumption in a way,” he said.

India’s latest budget targets the building of highways and railroads as well as providing water to all citizens. The spending plan comes amid a slowdown in the economy and a credit crisis in the shadow banking system that have dented consumer appetites.

With government plans to spend about Rs 1.6 lakh crore ($23.3 billion) on transportation infrastructure this year, Kotak Mahindra Life prefers shares of cement makers, engineering firms and construction contractors. The budget earmarks Rs 10,000 crore for drinking water projects in rural areas.

Kanawala also favors lenders that have good access to borrowing resources, as they’re likely to gain share amid the problems in the nonbank financial industry.

Kotak Mahindra Life has about Rs 9,500 crore in equity holdings. Kotak Classic Opportunities -- its top fund with Rs 4,370 crore of stocks -- has returned 11 per cent annually over the past five years, beating 73 per cent of rivals, according to data compiled by Bloomberg.

Here are some excerpts from the interview:

  • The US-China trade dispute “becomes more and more painful after each round of talks between the two nations and no resolution.”
  • “Central banks are getting accommodative across the globe and we expect another round of monetary easing in the next six to 12 months. We aren’t sure about how it impacts the global economy, but the impact on markets will definitely be positive.”
  • “Among financial stocks, apart from banks, we prefer shares of insurance firms and asset management companies.”

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