debt portfolio: How should you allocate towards debt in portfolio now? Ashish Kehair answers
Given the recent changes in regulation for debt funds, how should one look at allocation towards debt largely in managing their own portfolio?
Actually, on debt funds, Sebi has not done too much. It is the Budget which has made it taxable. That was one instrument that was a very tax-efficient avenue for all retail and corporate investors to allocate to debt and that has now gone away. I do not think that will alter asset allocation as such because people will still have to allocate between equity, debt, and alternatives based on their risk profile. But what will change is the choice of instruments. Direct bonds and maybe credit AIFs, and similar types of products, absolute returns, AIFs will come into existence. For retail investors, direct bonds will become popular and for the wealthier ones, credit AIFs and long-short funds and absolute funds will become more important as debt mutual funds have now become taxable.
If we look at the recent RBI policy, the rates were kept unchanged versus expectations of a marginal hike. Does this mean incremental flows towards debt can reduce?
It may increase, at least for the short period of time. RBI was clear that they are not withdrawing their stance. They are actually still in the mode of withdrawing their accommodation and they will wait to see whether there is a durable impact on inflation. Why they paused this time largely was because of two things, what they said. One was, of course, the global volatility; and second, they wanted to see whether the transmission of the past hikes have happened.
In our view, we may not see further hikes from here because globally the world is moving into a deflationary phase. There is a significant correction in the WPI which will impact the top line of corporates and they are in a sense seeing an implicit hike. Having said that, maybe, over a period one may see a little more upturn of the rates and then going down, then the general trend would be that the rates have peaked out. If that is the case, people will want to lock in more and more in order to benefit from the high rates which are prevailing now. People who want to benefit from short-term volatility will also take duration calls. Intuitively, the flow should increase in this phase and not go down.
Over the next one year, what are the events that can impact economic growth in India?
We will have to watch out how globally the central banks are pivoting towards rate hikes; how inflation is playing out and if any new kind of geopolitical risk pans out, what happens to China because China is opening up after a long period of time and maybe the elections. These are the four or five key events which will happen.
But having said that, one has seen that over the last many years, that at any point in time in any economy in the world, macro events keep happening but India is in a very good structural place. I do not think many countries in the world enjoy the multiple factors which are acting as tailwinds which India has. I am not particularly worried about these events. We have a very positive outlook towards India as such.
What is the overall view for equity in 2023? Any specific stocks and sectors that are looking attractive?
Sectorally, on the equity side, maybe it is better to speak to our head of research. Overall, banks continue to do well. If there is a rate reduction, which happens let us say not immediately but over the next 12 months, rate sensitives should do well. We are seeing decent numbers coming out from the real estate sector. Banking results and financial services results are continuing to be good.
One will have to wait and watch some of the areas in financial services like insurance and AMCs, because of the multitude of changes that have happened. Pharma looks okay and IT looks under a bit of stress on an overall basis. In consumer durables and associated industries, one will have to wait and watch how it plays out during the summers.
When it comes to wealth management, what is the opportunity that you would see in India and how would the brand leverage it for gaining share?
I continue to maintain that within the financial services space, wealth management is the most nascent opportunity. It is actually the youngest business that is in existence now. Globally, in markets which are far more developed, this is one of the largest sectors because when the economy moves from developing to developed, the affluence levels of people increase substantially. The way the financial services business transforms, from credit to savings to investments, the movement of capital is substantial.
Globally, half the wealth is held by individuals. That is not the case in India right now and it is moving in that direction. Individuals become the savers of capital and businesses and governments need those capital and wealth management plays the role of that intermediation, along with banks and other manufacturers.
Except banking, any other financial service product that finally reaches the hands of consumers, has to go through an intermediary. Collectively, this intermediary actually is called the wealth management industry. Now in India, a large part of it is unorganised and with the growing regulation, increased requirement of technology, product sophistication, a lot of consolidation and movement from unorganised to organised will happen over the next 10 years. That is the big opportunity which we are able to see.
What we have done in order to leverage is that we have not restricted ourselves only to the top tier of the pyramid. We operate in the middle and the top tier, which is the bulk of the wealth management market in the country because we feel that is where the real opportunity lies. And secondly, we have created a vast product field. We are not restricted to only one line of business, which is distribution which most of the other wealth managers do. I think the combination of these two, basically makes us well poised to tap into this opportunity.
After the rebranding exercise of the company, what does it mean for the business?
The ethos of the company will not change. We always kept the interest of clients above everything else. In the last 10-12 years, we have never had mis-selling complaints. Even in products like insurance where people struggle to have persistency ratios, ours is significantly higher than the industry. What will remain with us is our philosophy values. What changes is basically, a fresh way of looking at wealth.
We basically will become an independently listed, board-governed company. The governance standards will have to improve significantly for us to become an independently public listed company and that will have its own implications on how we organise ourselves internally and earlier we were part of the Edelweiss Group. A lot of these things were being taken care of by the Edelweiss Group Centre. Most of those things will be managed by us internally.
On the client side, significant amount of investments in technology will happen in line with whatever is happening in the market. Also, in terms of investment in people, we are expanding our geographical reach. Tier two and three cities have become mainstream in the Indian economy. The blurring between tier one, two and three is happening very fast. On the whole, we will continue with the client first philosophy, invest in technology, expand both our people and geographical reach. That is how we see the future.
As a demerger is in the works, can you share some details on the timeline?
That was the original construct of the transaction when the private equity, PAG came in. The first stage of the demerger was when we had to bring all the companies within Nuvama and that happened last year. The second and the final demerger is in the works now.
We expect NCLT approval in April. Then procedurally, we will have to file an information memorandum after our result of this year is out and board meeting and everything is done. We will file the information memorandum and that will lead to the process of listing,
The conclusion of the demerger in our view should happen by the middle or third week of May and we will be listing in another 40-50 days after that.
