We will reap benefits of low oil prices in 2016: BNP Paribas MF's Anand Shah

Even though sentiments have turned very weak, we will actually see the benefits of all the macro improvements flowing to company level in 2016, says Anand Shah, Chief Investment Officer, BNP Paribas Mutual Fund.

"The benefits of low oil prices would start to show soon. So far the benefits have not reached us, as they were absorbed by the government. That would now show this year in the form of road construction, investment in railways and pay commission," Shah told Business Today.

He re-iterates that the biggest plus (for India) today is oil. Low crude prices help in fiscal deficit, and containing inflation. Low inflation, in turn, helps in boosting consumption. "Oil is the biggest stimulus we have got without us having to spend much," says Shah.

According to him, it takes a while before you change things. But if you do things right, you will benefit in the future because India still has its demographic dividend to be captured.

He feels the biggest factor that favours businesses in India is demographics. "As much as you want to emphasise that government drives the market, it is the demographic dividend that's favouring Indian businesses. The government can act as the catalyst by facilitating increase in consumption and investments," he says.

Shah, who is responsible for managing the investment team and performance of all onshore portfolios of BNP Paribas Mutual Fund, differs from those who believe that equity markets behaved irrationally after Narendra Modi's victory in 2014.

"After the election, the sectors that did well in 2014 were not the sectors (cyclicals, infrastructure, etc) that were supposed to benefit from the new government. Between May 14 and May 15, the sectors that did well were IT and pharma. So, the markets during that period behaved very rationally. They rewarded companies with superior earnings growth and not cyclical, which were supposed to benefit from the government initiatives," says Shah.

On drastic fall of nominal GDP rate, he says you cannot have the best of both worlds. "When oil prices are down, toplines of companies like Cairn and ONGC will fall, inflation would come down, therefore, nominal GDP would fall," he argues.  

He reiterated that these (fall in nominal GDP, etc) are short-term pains. According to him, while lower commodity prices have brought in macro positives, they have brought in micro negatives. But the negative impact of lower commodity prices are behind us.

"Year 2016 would be better for the economy, earnings and even equity markets. We are going to see sustained inflow from domestic markets, and the momentum of foreign investors selling would slow down," he says.

According to Shah, one of the sustainable growth stories would be revolving around households, which is getting better every year.

"There would be more earning members, more earnings, and they would also leverage more. So, we are bulling on financial companies and manufacturers of household goods. We believe retail, private sector banks, consumer goods, telecom, airlines, logistics and oil marketing companies will be the key beneficiaries in 2016."