Chennai–Metals, banking, engineering and construction are the three sectors that are expected to deliver maximum earning over the next two or three years, said a senior official of HDFC Asset Management Company.

Earnings of three sectors – metal, banks, engineering and construction-were destroyed for different reasons, Prashant Jain, Chief Investment Officer told BTVi in an interview.

According to him, the low prices impacted the metals sector while the provisioning for loans affected the banking sector.

The engineering and construction sector also suffered significant damage to values due to weak capital expenditure and high interest cost, Jain said, adding that the metal prices are getting corrected.

The provisioning for bad loans in banks should moderate over the next two years, he said.

“These are the three sectors which should deliver maximum earning growth over the next two/three years,” Jain said.

Queried about banks lowering their lending rates when their cost of funds isnot going down, Jain said banks that enjoy good liability franchise (depositors goodwill) will get higher deposits due to demonetisation.

He said such banks has the natural advantage to lend at a lower rate and those banks with higher deposit cost may be affected.

According to Jain, the earnings of all banks – private or government owned – were affected, with the main pain point being the weak asset quality, that has to be resolved in two years time.

He did not agree that the corporate governance is an issue with many engineering and construction companies barring the big companies.

Queried about any policy instability in India, Jain said he does not see policies getting changed dramatically and the broad direction of the economy is clear.

On the redemptions by foreign investors from Indian mutual funds, he said whenever they sell it is a good opportunity to invest. The phase of redemptions by foreign investors would pass.

According to Jain, one should be alert to rising interest rates in the US while terming it as an assumption that the rate would go in a V shape-sharp increase.

He said there is knee jerk reactions in Indian markets whenever developments happen outside India.

On index investing, Jain said one cannot hope to make money out of index investing every year or two. However he said index is good investment option but actively managed fund have delivered much higher returns.

As to the stability of Indian rupee, he said it depends on several factors like how the US dollar, US interest rates, oil prices and Japanese yuan behave.

Jain said oil prices are unlikely to cross $65 per barrel and gold imports would be modest.

He said India’s current account deficit is low and would remain low. “If you have stable and low current account, fast growing economy and a credible government the rupee should remain stable and is unlikely to experience sharp devaluation,” he said. (IANS)