Stock markets and precious metals are at record highs. Where are the ultra-HNIs investing their money?

Indian markets have witnessed a strong rally in the last year. Data available from ACE Equity shows that the benchmark BSE Sensex has surged 22% in the past 12 months until July 18. The broader market benchmarks BSE MidCap and BSE SmallCap have outperformed the Sensex and gained 62% and 60%, respectively.

On the other hand, another investment avenue, precious metals, is also seeing a similar rally, as gold prices jumped 27% while silver gave 30% returns in the period. Where then should one invest? In an interaction with Business Today, Himanshu Kohli, a veteran of the wealth management industry and Co-founder of Client Associates, shared his insights on where HNIs and ultra-HNIs are investing their money, which sectors are still looking attractive, how to diversify the portfolio, and more. Edited excerpts:

BT: Currently, the equity market is at new record highs. Where are the HNIs and UHNIs investing their money now?

Himanshu Kohli: The financialisation of savings has become a game changer in the wealth management industry, and hence, financial assets are getting a higher wallet share of HNIs and UHNIs. Within financial assets, these clients invest as per their profiles, which means they are consuming more equities, debt alternatives, and alternates, and in this space, the preference is for the unlisted space, specifically the PE/VC funds. Many UHNIs are also unlocking value from traditional businesses and investing in new-age businesses and luxurious properties.

BT: Real estate has given good returns in the past couple of years; do you see more upside from here?

Himanshu Kohli: As real estate is a function of demand and supply, properties with limited supply and more demand will continue to do well, and properties with an oversupply and weak demand will not perform as strongly. Secondly, interest rates could also play an important role, as when interest rates come down, consumers would like to convert their rentals into EMIs, thereby increasing the demand for real estate. We believe real estate will only give single-digit returns on a country-level basis.

BT: PSU stocks outperformed the market last year; do you think the momentum will continue for the next 1-2 years?

Himanshu Kohli: We believe that the momentum in the PSU stocks will not continue as the focus will be more on quality stocks with a growth-oriented approach. PSU stocks with a value focus have done well, but now the bias will be more towards growth at a reasonable value, where growth will come more from quality stocks.

BT: Which sectors are still looking attractive in this bull market?

Himanshu Kohli: We advise clients to build their core portfolio of diversified funds and investment options and let the fund managers decide on the sectors. However, if they wish to have a small satellite portfolio, they may systematically invest in banking and financial services-oriented funds that have recently underperformed.

BT: Where should investors invest the money now? How can they diversify their portfolio?

Himanshu Kohli: Firstly, investors should look at their profile and see where the gaps are, work on the asset allocation model accordingly, and decide how much of their surplus should be in growth-oriented portfolios or capital protection-oriented funds. As for the tactical allocation, we suggest under-consuming equities, wherein we are underweight on the small- and mid-caps and slightly neutral on the large-caps.

We recommend a higher allocation towards fixed-income portfolios as we expect the interest rates to decrease. In this segment, we suggest fresh inflows into “debt alternatives” and a tactical allocation into long-duration bonds. We are also optimistic about the unlisted space, especially the PE/VC funds, and as these have been facing some corrections, either in the form of price or time corrections, this is an excellent time to take exposure to this asset class. We are neutral on the real estate segment while positive on international investments, and here, our focus is on emerging markets with a five- to seven-year perspective.

BT: What are your expectations for the Indian equity and bond markets and the overall economy going forward?

Himanshu Kohli: We are optimistic about equities from a long-term perspective, but they can be volatile from a short-term perspective. Hence, we are slightly underconsuming equities. Within this basket, the higher allocation is more towards large caps, while we have reduced our allocation into mid- and small-cap segments. On the fixed-income side, we are taking a tactical call on duration as interest rates are expected to further come down from here.

India’s macroeconomic fundamentals continue to remain resilient, with the country continuing to be the fastest-growing economy in the world. Our macroeconomic indicators, whether our GDP growth, current and fiscal deficit, forex reserves, currency, and inflation, are all intact, while we have robust domestic liquidity, which means our markets will remain buoyant and reasonably strong.