wealth creation: ETMarkets Smart Talk: How to create wealth in FY24? Invest in medium to long duration funds: Sanjay Pawar

In an interview with ETMarkets, Pawar said: “The current turmoil in the banking sector, risk of global recession, elevated inflation level, ongoing war are the few risks which will continue to dominate investment decision in next year,” Edited excerpts:
External events are weighing on market sentiment. Where do you see markets heading in April and any events which investors should track?
External factors are very volatile and the global banking sector is also under public scrutiny due to mounting treasury losses. The US FED has also kept the ‘dot-plot’ for 2023 unchanged in its last meeting with a terminal rate of 5.1% depicting we are nearing the peak.

Domestically, rates are trading in a narrow band; however, the market will take further cues from the first half borrowing calendar number, RBI’s April policy action, and its stance.

Recently, FM proposed to scrap LTCG benefit from Debt MF. What does this mean for investors’ community at large and what is the kind of long-term impact you foresee on the flows?
Indexation benefit was an added advantage for investors to invest in Debt funds; however, they still investor will prefer investing through the Mutual fund route due to easy liquidity as most schemes do not have an exit load and one can put part or full redemption any time unlike traditional instruments where investor can’t get part payment.

Also, in the case of traditional instruments, one has to bear a pre-closure penalty.

Secondly, Mutual Fund portfolios are updated on respective AMCs website sites every fortnight. Investors can easily view where their money is deployed resulting in the highest level of “Transparency”.

Lastly, in a falling interest rate scenario investors may get the benefit of capital appreciation as the portfolio is valued mark to market daily. This may not be possible in the case of traditional instruments.

Also, savvy investors who want to time the market and invest for a shorter time frame will prefer through MF route because of liquidity and scope of capital gain.

We will be entering new financial year in April – where do you see markets headed in the next financial year and what risks will be carried forward from FY23-24 that investors should watch out for?
In FY2023-24 central banks were in rate hiking mode to combat inflation and to withdraw excess liquidity from the system which has resulted in yields inching upwards and ultimately flattening of the curve.

Early next year we may reach the peak of the rate hiking cycle and then maybe a pause for a long time. Hence the impact on further rate hikes may be less.

Thus, this provides a good opportunity to invest as the market tends to price events in advance which may result in investors start chasing rates for higher accrual and peaking of rates.

However, the current turmoil in the banking sector, the risk of global recession, elevated inflation level, and ongoing war are the few risks that will continue to dominate investment decisions in the next year.

Amid the rising interest rate scenario – how can investors create wealth in the long term? What should be the asset allocation?
As we are at fag end of the rate hiking cycle and with bond yields in the range of 7.30%-7.40% (source: Bloomberg), I believe, it may be a good opportunity to invest in medium to long duration Funds depending on individual risk appetite.

Do you think the rate cycle globally has peaked or maximum another rate hike in this calendar year and we could actually look at a rate cut as we approach December 2023? What are your views?
At this point Dot-plot is showing a maximum 1 rate hike of 25 bp with funds rate at 5.1% by the end of this year. However, the market is pricing rates closer to 4.0% in the same period.

In our opinion, future action will depend on upcoming factors like resilience of the global banking sector, labour market, inflation level, and the impact of the reopening of the Chinese economy on commodity prices.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of Economic Times)