This Rs 1.4 lakh crore money manager says take money out of stocks now, here's why

After a rally of about 10 per cent in Indian stocks over the past year, the nation’s second-biggest life insurer has one message for investors: it’s time to take some profit.

“It’s time to take some money out of equities because valuations are looking stretched,” Gopikrishna Shenoy, chief investment officer at SBI Life Insurance Co., which has most of its equity assets in larger stocks, said in an interview at his office in Mumbai. “There’s no immediate indicator of a return to sound earnings growth and it will take some time,” he said.

Uncertainty about the poll outcome that culminated in Prime Minister Narendra Modi’s re-election last month prompted investors to shift into shares of top Indian companies over the past 18 months from their smaller counterparts. During the period, the key S&P BSE Sensex and NSE Nifty 50 indexes rose at least 12 per cent, while the NSE measure of mid-sized companies fell by 15 per cent and a small-cap gauge plunged 29 per cent.

As the euphoria generated by Modi’s re-election settles down, investors are turning their attention to how the new government plans to bolster a slowing economy and curb a cash crunch that has led to some companies delaying or defaulting on interest payments.

Shenoy, who oversees nearly 1.4 trillion rupees ($20 billion) of assets -- of which 23 per cent is in equities, has reduced his shareholdings in top automakers, cement producers and consumer-staples companies. The life insurer also sold some shares in software exporters, barring the top two.

Still, he’s looking to reinvest the cash back into equities. Even as SBI Life continues to remain upbeat on banking stocks, it plans to buy into any dip in consumer and automobile stocks, mainly those of utility vehicles and motorbike makers, as it sees a recovery in demand from this year’s last quarter.

SBI Life expects earnings at India’s top 50 companies to rise as much as an average of 14 per cent in the financial year that started April 1, boosted mainly by banks as they’re expected to set aside fewer provision for bad debts as non-performing loans fall.

The insurance firm has reduced its holding in shares of mid-sized companies in its equity funds to 9 per cent from about 22 per cent in 2017 and doesn’t see any immediate reason to change the balance. “We see a lot of value in mid-caps, but we won’t make a major shift to them, at least for the time being,” Shenoy said.

SBI Life held 2.1 per cent of India’s total 331 million life insurance policies as of March 31, 2018, according to the latest data on the insurance regulator’s website, second only to state-owned behemoth Life Insurance Corp. of India’s nearly 88 per cent share.