Edited excerpts from a chat:
Sensex, Nifty have failed to beat bank FD in the last one year. Do you think that most of the time correction is behind us and that the growth trajectory should be back soon?
Market returns are never in a straight line, but mean reverting on both sides. Meaning a phase of above average returns will be followed by below average returns and this goes on, at various degrees depending on the economic growth, interest rates and other macro factors, decide the intensity of such mean reverting oscillation. Therefore, investors have to focus on their goals or period of investment horizon, the instruments, say equities, and the factor or the strategy, say value-momentum etc, to invest in for long term wealth creation. If this is done right, then the performance of the near or medium term will not matter.
India has great long term potential compared to the rest of the world economies, in this context, above average equities return will be made in the long run.
FII selling has created pressure on Indian equities. We saw Q1 earnings season doing little to change investor opinion. When do you think we can expect broad-based double-digit earnings growth once again?
FII selling may have happened due to many factors, tactical opportunities somewhere else, global concerns, currency factors etc. FIIs’ selling and domestic growth has historically had no correlation especially since the last 5 years. In spite of recent headwinds, India is still the fastest growing economy on the earth and will continue to grow due to demographic dividend and strong leadership driving growth and reforms. A recent slowdown can be attributed due to geopolitics and uncertainty in global investment and risk climate. Soon this too shall pass and India will be back with its momentum with needed reforms like the GST rationalization done recently to push the paddle.
Which sectors do you believe will lead the next leg of market growth, and what’s driving your conviction in them?
Import substitution, industry consolidation, infra capex and technological advancements are going to drive growth, and these are the same factors which have been driving the domestic growth for the last few years. Because of these reasons the growth is broad based, sustainable and is happening across the sectors. Post the Pahalgam attack now even the defence sector is witnessing the growth momentum.
With a series of measures like income tax and GST rate cuts, do you think consumption is becoming a no-brainer theme for the next couple of years?
The focus of investors will certainly shift to consumption sectors and discretionary spends particularly post the GST cuts. When the consumer will save on taxes, direct and indirect, he/she is not going to consume more soaps, the run rate is fixed, but certainly the incremental savings can go to discretionary spends like autos, fashion, lifestyle upgrades etc, hence investors are likely to recalibrate the investment strategy and will now also look at these discretionary consumption pockets.
If you had Rs 10 lakh to invest in the market right now, how would you spread it across gold/silver, equities and debt?
So long as the US has the current leadership it would be far better to have very well diversified asset classes to invest in. Gold, debt and equities are an ideal combination. But investors can look at superior investment options in the mutual fund space offered by newer AMCs which are dynamically managed. The asset allocation to equity-gold-debt depends on the opportunity at hand and thus aims to optimize the returns (from whichever asset class that generates returns) and at the same time get downside protection. Such dynamic change in asset allocation also saves hassles of taxes for the investors.
Lastly, what’s the one contrarian idea that you’d be backing for the next 12 months?
A true contrarian idea or theme seldom gets picked in the normal course of things, it’s a surprise, either positive or negative that takes everyone by awe. Instead of guessing such an outcome, one must be prepared to act if such and such things happen, and what their course of action should be taken. For example, if the US interest rate starts to rise, then Rupee would come under pressure, Indian equities under pressure, Gold can perform etc. and thus act on such events instead of just waiting and hoping. This is just an example so that one is ready to face surprises.