ETMarkets Fund Manager Talk: PGIM India's Surjitt Singh Arora is betting on capex-oriented sectors. Here's why

In the backdrop of the heightened global macroeconomic risks, it would be wrong to assume that India has de-coupled, says Surjitt Singh Arora of PGIM India Portfolio Management Services. “Indian markets correlation is around 0.6-0.7x of US markets. Hence, it would be wrong to assume that we have decoupled,” Arora, a portfolio manager at the fund house, told ETMarkets in an interview.


PGIM India Portfolio Management Services core strategic portfolios have investments across various domestic-linked sectors, but what’s notable is their bet on India’s leading conglomerate Tata Group, as they have a 16% exposure to this pack. Edited excerpts:

What were your top bets this year, and which are the sectors or segments that look lucrative for investing?
For PGIM India’s core equity portfolio, we are positive on industrials (capex-oriented sectors), automobiles, retail, banks and residential real estate. For PGIM India Phoenix Portfolio, we are positive on building materials, residential real estate and Tata Group companies (Tata group exposure at ~16%).

2022 is nearing end; how do you see 2023 panning out for equities as an asset class? Any major risks you see for India?
Given the heightened global macroeconomic risk, we expect markets to remain volatile.

Indian markets correlation is around 0.6-0.7x of US markets. Hence, it would be wrong to assume that we have de-coupled.

The interest rate differential between the US and Indian economy is widening, thereby, putting pressure on the Indian rupee.

India, being a net importer, could see balance of payment deteriorating, if there is further weakness in the local currency.

Global geopolitical risks would be an additional risk to monitor in the medium term. It’s difficult to predict the direction of the rupee, given the global uncertainty we are dealing with.

However, given the favourable demographics and increased investments, India could see steady growth over a long term.

Cooling off of a high inflationary environment (on a high base), lower energy prices and decent earnings growth trajectory augur well for Indian markets.

Equity funds have seen sustained flows in 2022 month after month. Do you see a similar trend in 2023 or could one see more money moving to debt funds?
In our view, equity flows are likely to sustain given the fact that investors have understood the long-term potential of the Indian economy.

The testimony to this is the all-time high SIP inflows into equity mutual funds. Going forward, there would be some portion of incremental money going into debt funds, as interest rates are rising and debt funds are a part of asset allocation.

India outperformed global peers in 2022 because of upbeat domestic outlook, and this saw domestic-linked companies gaining favour against export-oriented sectors. Do you see this phenomenon staying through in the near term?
Given the global monetary tightening and inflation scenario, markets globally have seen a correction, though India’s outperformance has been remarkable.

Due to the trinity of rising global interest in India, favourable demographics and increased investments, India could see steady growth over the long term.

You mentioned about the strong SIP flows that equity MFs have seen this year. Do you see the trend continuing? Any ballpark figure you see by the end of FY23?
Yes, there is a higher probability of SIP investments continuing in FY23 as the savings of Indian investors gets channelised towards financial instruments rather than assets such as real estate or gold. It’s difficult to put a number to it, but the possibility of the uptrend continuing is quite high.

Corporate earnings are widely expected to improve in H2 FY23. But do you see any significant earnings upgrades in the near term? Or are there risks to earnings growth?
Given the reduction in raw material and stable demand environment, earnings are likely to improve in H2FY23 vs H1FY23, with the majority of corporates offering a similar guidance. However, one needs to be cognizant of the fact that the risks of rising interest rates and global slowdown would have an impact in the near term.

In that context, earning upgrades looks difficult as the improvement in H2FY23 has already been built into expectations.

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