A $10 billion asset manager’s top sectoral bets for next 5 years

MUMBAI: Bajaj Allianz Life Insurance’s Chief Investment Officer Sampath Reddy says the next three-to-five years may belong to the ‘old economy’, not the new one.

The fund manager, who looks after assets worth close to $10 billion, sees the engineering and manufacturing sector as the place to be unlike the common perception of betting on ‘new economy’ sectors like Internet and consumer technology.

“I think from a three- to five-year perspective, one could pick a few stocks from the general manufacturing, power, metals and engineering sectors,” Reddy told ETMarkets.com in a virtual interview.

Reddy is counting on the Indian capital expenditure to come back roaring from its deep slumber of nearly a decade. For instance, in the metals space, Reddy believes lack of investment in new capacity combined with the return of strong global demand may keep commodity prices elevated for some time to come.

Stocks from the domestic manufacturing and commodity sector have seen a strong rally since late 2020, as easing pandemic restrictions in most advanced economies and China’s efforts to curb pollution have resulted in a breakneck surge in prices of everything from steel to zinc to copper.

The Nifty Infrastructure index has risen 16 per cent so far this year, while Nifty Metal index has gained 56 per cent in the same period against a 9 per cent rise in Nifty50.

Nifty50’s relatively lukewarm performance has been a function of investors dialing back optimism for the economy in the face of a severe second wave of Covid-19 infections and a struggling vaccination drive by the government.

While Reddy’s optimism on the cyclical sector is steely, he believes defensive sectors are still offering the reasonable prices in the ongoing grind of the blue chips.

“The key sectors that we like and have overweight exposure to are IT services, FMCG, healthcare and diagnostics,” the asset manager, who has spent over a decade at the life insurer, said.

Reddy does not see much risk to corporate earnings from the second wave of the infections, but is concerned that something nasty might be staring global equities on the horizon. Reddy says as the global economy recovers to its pre-pandemic levels, “we may see some guidance or action from the major central banks regarding rolling back some of the massive monetary stimulus”.

“In that event, we may see some volatility in global markets including India, as abundant liquidity is what has been supporting this rally,” he said.