This year’s theme for Emerging Ideas is Reinvent: Stronger, Bigger, Better. We strongly believe that the current world order is changing, that too at a pace we had not ever envisaged, Anshu Kapoor, Senior Executive Vice President, Edelweiss Financial Services, said in an interview with Moneycontrol’s Kshitij Anand.Q) What is the theme of this year’s Emerging Idea conference and what is your view on how the conference has Panned out in light of it being virtual?
A) This year’s theme for Emerging Ideas is Reinvent: Stronger, Bigger, Better. We strongly believe that the current world order is changing, that too at a pace we had not ever envisaged. This change is visible across these 5 areas:
• Geo-politics: move away from globalization, trade, supply chains
• Economics: asset-price disruption (oil trading briefly below $0), near-zeros interest rates in developed countries, rapidly falling interest rates in emerging markets, rapidly inflating national debt
• Industries: business models are evolving to include shifts in - customer engagement, revenue model, product proposition and digitization (front end and workflows); balance sheet consolidation
• Households: impact on household incomes, preference for cash, shift in consumption
• Markets: impact of extreme volatility, abundant liquidity, capital raise
The world is reinventing as it goes through this pandemic -- what does it need to emerge stronger, bigger and better? It’s now a scenario of the survival of the fittest and we need to prepare optimally for the same and that is why this forms the theme for this edition of the conference.
We have adopted digital means to interact with our clients and team and so far, things have worked very well.
Q) What is your take on Debt/credit as a category and what are the instruments one should be looking at when investing in these avenues?
A) Debt/Fixed Income should form a part of everyone’s portfolio. It is a very important asset class that offers some form of stability to one’s portfolio.
At the current juncture, we recommend investors to hold on to high quality investments (AAA and sovereign debt). In addition, high-quality Debt mutual fund portfolios, AAA MLDs, Quality Bonds/NCDs can be looked at.
It's important for investors to differentiate between fixed income and credit. We do not think, in general, it is the right time to take exposure to lower-rated credits yet, as we still are in the midst of the pandemic that has led to a further slowdown of the economy.
Things are opening up slowly, however, it will still take more time to reach normalcy. Till then, we prefer the quality part of the market.
For investors with a relatively higher risk appetite, one can look at quality names in the AA rated bucket. Exposure can be taken through MLDs/ Bonds/ NCDs. Also, Bharat Bond, REITs, InvITs, offer an attractive opportunity for investment.
Q) What is the ideal asset allocation portfolio that you would advise and what will be the rationale for the same?
A) Strategic Asset allocation depends on the risk profile and investment tenor of an investor. In the current market environment, it is even more important that the investors stick to their asset allocation.
Tactically, at present, we are marginally underweight in equity, given the dichotomy of the markets vs fundamentals.
On the fixed-income side, we are avoiding credits in general, but given the attractive risk-reward in certain select AA names, we have made some allocations to carefully curated names. Also, we maintain our positive bias towards REITS & InvITs.
For a balanced risk profile investor, an ideal asset allocation could be as follows:
Equity – 30 to 60 percent (depending on market valuation at the time of entry/deployment)
Fixed Income – Upto 70 percent (an underweight equity call will lead to higher Fixed Income allocation and vice versa)
Alternatives – Upto 15 percent
Cash/Liquid – Upto 10 percent (a certain part of the portfolio has to always liquid)
Q) Prime Minister Modi emphasized on Infra, fiber-optics, cybersecurity in his speech on the occasion of Independence Day. What are your takeaways and how will it impact these sectors?
A) It’s a good initiative taken by the Government, which will certainly benefit the country as it will improve connectivity and aid in job creation.
It will certainly provide the much-needed impetus to construction as well as the IT sector, proving positive for the domestic economy.
Building tech-based infrastructure is the need of the hour and it is heartening to see the GOI taking a step in the right direction. Needless to say, technological advancements are here to stay and India should be aiming to stay ahead of the global curve.
Q) Broader market seems to be firing all cylinders. What is your take on the small & midcap space? Should one consider putting money now for long term wealth creation?
A) All indices are significantly up from their March lows. In terms of long-term wealth creation, India seems to be consolidating.
Markets chase profit pools and one should invest in companies with higher profit pools for long-term wealth creation.
Even though mid and small-cap companies seem attractive in terms of valuation (in comparison to large caps), they generally move in sync with the economy.
Therefore, it’s advisable to watch economic data (GDP) and various high frequency indicators like PMI, auto sales, fuel sales, etc. before adding mid-smaller companies to your portfolio.
Q) What is your take on the markets? Do you think we could see some selling pressure when the Vaccine actually arrives? It will be a classic case of buy on rumors and sell on news?
A) We do not think so. A positive surprise like an early vaccine, could provide a boost to the economy, as it opens up in full capacity. This is a pandemic-driven crisis and the natural end to it, will either be through a vaccine or through a plateauing of death rates.
So, a vaccine will play a critical role in bringing normalcy to the markets, economies as well as investor sentiments. This will be more pivotal, if it comes into action, earlier than currently expected.
Q) Which is the biggest risk for equity markets globally - is it the trade war between US and China, or the outcome of the US Presidential elections?
A) These are temporal issues that do not increase market risk significantly. Currently, the markets will rather take cues from monetary and fiscal policies across economies and how they pan out over time. The second wave of the pandemic and its management remains a trigger to be cautious of.
Q) Market might not go back to levels seen in March, but what would be a good level to enter in a case we see a selloff in equity markets?
A) Currently, we are marginally underweight in equities on our portfolio as Nifty is currently trading at a premium as the forward P/E stands close to 20. At this juncture, we do expect markets to correct a bit and we will continue to buy on dips rather than sell on the rise.
This has been our consistent strategy since March 20, to tackle the incoming volatility wisely. We expect that money accumulated in this staggered fashion, will yield handsome returns for investors, over the next three years.
Q) If you are looking at long term wealth creation, one cannot ignore Gold now. Can the rally sustain in the yellow metal? And, should investors diversify towards international markets?
A) We expect gold to continue its upward rally but with short term corrections. It’s not going to be a straight forward journey, but we can use the dips as a favourable entry point in the commodity for long-term returns.
Fall of US Yields, the weakening of the Dollar Index and demand-supply dynamics continue to offer cues with regards to the strength of gold. International diversification makes a lot of sense – India is ~3 percent of world GDP – why should investors exclude the remaining 97 percent from their investing horizon?Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.