Q1) Tell us more about the recently concluded conclave in Mumbai last month. Which are the big themes you are looking at?
We recently organized the 7th edition of the Elite Club Conclave. It is an annual invitation-only event we conduct for our Premium Customers at a plush location. The previous year was volatile, and the index hardly moved. Similarly, even in the future, there could be phases when uncertainty may appear. But if investors focus on the big picture and India’s long-term growth story, they could excel and create substantial wealth. So, we had chosen this theme: RISE UP -> Reimagining the India Story – Excel in Uncertain Periods.
The event brought together over 200 elite investors from different parts of the country, market experts, and thought leaders, all united by a shared vision of reimagining the Indian investment landscape. This event had engaging sessions and an invigorating panel discussion involving market experts.
Q2) You published interesting research recently -- Next surge of Indian investors will be from Bharat. Tell us more about its findings.
The Indian Investor Kundli sheds light on interesting trends in investment behaviour. It reveals that once Indian investors reach the age of 35, they exhibit a strong inclination toward direct equity investments. Surprisingly, over 50% of these investors are from non-metro cities, indicating a growing interest in financial markets beyond the major urban centers. Notably, around 50% of these investors have yet to experience a complete business cycle, suggesting limited exposure to market fluctuations.
Despite this, a significant majority of approximately 60% of Indian investors embrace a long-term investing approach, highlighting their commitment to holding investments over extended periods. However, on the performance front, about 30% of investors have underperformed the index, and a significant 27% remain uncertain about their Compound Annual Growth Rate (CAGR).
As investors age, their investment journey becomes more fulfilling, particularly after 35. Older Indian investors aspire to upgrade their lifestyle through their investment endeavours. Additionally, with increasing age, investors tend to become more comfortable with a lump sum investment approach, indicating higher confidence and risk tolerance. Interestingly, the CAGR improves with age, suggesting the potential for enhanced returns over time.
Question 3 There is some nervousness in markets, but we are inching towards record highs. What is your view for the rest of 2023?
Inflation is well-managed, commodity prices are stabilizing, domestic demand is favorable, and the business outlook has improved. Consequently, the current surge in our markets is supported by robust fundamental factors, indicating a positive outlook.
Our economy stands out as one of the most attractive investment opportunities worldwide. Anticipated GDP growth of 6.0-6.5% or higher in the coming years surpasses that of other countries. Furthermore, inflation is well-controlled and steadily declining, reaching a low of 4.25% in May 2023, which marks the lowest level in the past 25 months.
In addition to this, credit growth remains robust at 15%, indicative of a healthy lending environment. The government's financial position is robust, bolstered by commendable tax collections. Moreover, the corporate earnings growth outlook is promising, with expectations of 15-20% CAGR increase in earnings for Nifty universe stocks over the next two years.
Given these positive fundamental indicators, there is currently no immediate cause for concern regarding market levels. On the contrary, any potential market correction should be regarded as an excellent opportunity by long-term investors to accumulate high-quality stocks at favourable prices.
Question 4: What are the risks to the rally that we see in Indian markets?
The Indian Meteorological Department (IMD) has projected a normal monsoon for 2023. However, there is a possibility of El Nino conditions developing during this monsoon season. This is particularly concerning as 60% of our population resides in rural areas that heavily rely on agriculture, and an erratic monsoon can lead to a delay in the revival of demand in these regions. Additionally, with elections scheduled for 2024, there is a possibility of market fluctuations. Nevertheless, I believe that the medium-term risks are manageable as the domestic conditions appear to be under control. Although uncertainty remains in the international markets, our lower dependence on exports and foreign markets places us in a stronger position.
Instead of focusing on the medium term, I think it would be prudent to closely monitor the long-term factors that could potentially hinder India's structural growth story. These factors include the pace of job creation, skill development, improvements in literacy rates, advancements in healthcare, focus on manufacturing, pace of infrastructure development and creating a conducive environment for the businesses to thrive. By keeping a close eye on these aspects, we can ensure progress towards our goal of becoming a USD 5 trillion and eventually a USD 10 trillion economy in the next 10-12 years.
Question 5: RBI kept the interest rates unchanged in June. What does the rate trajectory look like for the rest of FY24?
We believe that the cycle of rate hikes has come to an end. Domestic inflation is easing, and growth continues to be resilient. Consequently, the overall environment has improved, presenting an opportunity for the Reserve Bank of India (RBI) to potentially lower interest rates. Nevertheless, we anticipate that the RBI will exercise caution at present, closely monitoring the situation before making any official announcements regarding rate cuts, which we expect may happen in the latter part of this year.
Question 6: How should investors play the markets in terms of asset allocation? With rates remaining status quo – where does the fixed-income market stand?
It's always a good idea to have a diverse investment portfolio. Before deciding how to allocate your assets, it's important to assess your tolerance for risk and determine your investment goals.
With the current high interest rates, fixed income products may seem appealing for the short to medium term. However, if we look at the impressive returns our markets have provided, surpassing 15% over the past two decades, it becomes clear that investing in stocks is a better option for long-term growth.
Considering the positive outlook for our economy and the potential for long-term expansion in India, it's worth considering an investment in a well-diversified stock portfolio that includes fundamentally strong and low-risk companies. Such a portfolio can potentially generate returns of around 18-20% over the next 5 to 7 years, contributing to the creation of long-term wealth.
Question 7: How should one play small & midcaps stocks?
Considering the runup in the frontline stocks and the relatively lower valuations in the small and midcap space, there appears to be a favorable investment opportunity in this area. However, it is important to exercise caution and adopt a bottom-up approach when selecting stocks in this segment. By conducting thorough research and analysis, investors can identify potential opportunities and mitigate risks in the small and midcap space.
Question 8: Which sectors are you overweight/underweight on?
We have a positive outlook on the automobile industry, particularly the electric vehicle segment, due to favourable government policies driving its growth. Given the strong demand environment, we also have a positive view on consumer discretionary sectors. Additionally, we see potential in the building materials sector and select new age businesses, especially the ones focusing on the QSR (Quick-Service Restaurant) and fashion/personal care sectors.
However, we maintain a cautious stance on the fintech space, as it is currently experiencing significant turbulence and may take time to stabilize. On the other hand, the traditional Financial Services sector appears attractive due to robust credit growth in the economy, which exceeds 15% levels.
Furthermore, with the government's focus on promoting the manufacturing sector through initiatives like the Production-Linked Incentive scheme (PLI) and Atmanirbhar Bharat, we see promising investment opportunities in the manufacturing sector.
Given the global discussions around a potential recession and the prevailing environment of uncertainty, we are avoiding sectors with high dependence on exports, such as IT and pharmaceuticals.
Question 9: How should one pick stocks for their portfolio? What are the factors to consider before investing?
Our belief is that it is important to build a diversified portfolio consisting of fundamentally strong businesses. Ideally, create a portfolio of 20-25 carefully selected stocks that are spread across 7-8 different sectors. It is worth noting that managing a portfolio with more than these number of stocks becomes challenging for an individual to track on a day-to-day basis.
To strike a balance between risk and potential returns, it is advisable to include stocks from both large-cap and mid-cap companies. This ensures sufficient liquidity within the portfolio. It is also beneficial to create a mix of high-growth stocks with potential for rerating, along with some well-established players operating in high-growth sectors. This combination helps to diversify risk and capture opportunities from different market segments.
Finally, when selecting stocks, it is essential to consider companies with good management pedigree that are committed to following sound corporate governance practices. This ensures that the companies are led by competent leaders who prioritize the long-term success of the business and act in the best interests of their shareholders.