ETMarkets Fund Manager Talk: Budget becoming more predictable, being a perennial exercise, Rajesh Kothari, AlfAccurate Advisors
“…Budgets are becoming more predictable since many policies are being announced throughout the year, making it a perennial exercise,” the founder and MD of the portfolio management advisory firm and a WealthBasket curator said. Edited excerpts from the interview:
The start to the New Year has not been good for markets. Given the volatility due to persisting global risks, how should investors approach markets?
In 2022, the majority of things that could have negatively impacted the global economy happened. India stayed positive in many regards despite the unstable and depressed atmosphere.
This has led us to advise investors to avoid putting too much emphasis on macroeconomic indicators and to pay closer attention to the Indian market, which is currently experiencing a growth inflection.
While the world is arguing whether the global GDP will decrease by 1% or increase by 1%, India is debating if its GDP will expand by 5% or more.
Although wobbly global growth poses a risk, it also creates a window of opportunity for Indian businesses as global majors place an inordinate emphasis on cost.
In this case, we advise investors to allocate a sizeable amount to the Indian equity asset class with an investment horizon of 3 to 5 years.
In the run-up to the Budget, which are the sectors that will see most of the action? Which are those you would recommend getting into?
For us, the budget is a non-event, as we focus on the medium to the long-term investment horizon. Fortunately, budgets are becoming more predictable since many policies are being announced throughout the year, making it a perennial exercise.
Which sectors/stocks are looking attractive to you and would want to add to your portfolio in 2023?
As the investment cycle is only getting started, we think that the capital goods sector is a promising one right now. We also have a positive outlook on the banking industry as a result of significantly improved asset quality of select banks and the acceleration of non-food credit growth.
Within each such sector, we are further focused on the digital resilience of the company as those companies can offer better earnings growth than their peer group.
Retail inflows remained buoyant in 2022, do you expect the buoyancy to sustain in this year too?
The resurgence of domestic investors has been the highlight of Indian capital markets in the last few years. When it comes to structural liquidity support during any significant market decline, domestic institutions and retail investors have established themselves as the backbone of the Indian equities markets.
As of March 31, 2022, the total stake of Retail, HNI, and DIIs in businesses listed on the NSE hit an all-time high of 23.3%, much above the percentage of FPIs, which was 20.2%. Although it is uncertain whether all of the increased equity interest will continue, there is a definite trend towards more financial savings.
What kind of diversification in asset allocation would you recommend to your clients in an expected volatile market conditions?
There is no one technique that works for all investors because they are all unique. In order to properly allocate assets, an investor should always speak with his wealth manager, to ensure that the investor’s risk and return goals are met.
Which pockets within the midcap and smallcap segment look attractive to you and why?
In my view, one should use the lens of net profit size instead of market cap to decide whether a company is large or small. Out of more than 5000 listed companies, there are approximately 600 companies that make a net profit of over Rs 100 crore. In my opinion, any company having more than Rs 100 crore in net profit is considerably large.
As a part of our investment philosophy, we buy only those companies which are industry leaders, irrespective of their market cap. It is this leadership character along with a strong balance sheet and superior earnings growth that results in long-term superior risk-adjusted returns. To answer your question, I believe that companies exhibiting resilient leadership, having solid fundamentals, and a strong business moat are the most poised for growth in the coming years.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
