Start early, stay disciplined, spend some time looking at it, have a proper plan around it and remember, it is not necessarily which mutual fund or which stock you’re invested in - eventually the biggest call you’re taking is the asset allocation call, Prasun Gajri, Chief Investment Officer, HDFC Life, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) We are in a very tricky situation – COVID makes us cautious but liquidity on the Street make us greedy with a lot of small & midcaps touching multiyear highs? What should be the strategy now?
A) Well, clearly you’re absolutely right. The challenge which COVID has thrown before us really means that the economy is going through a certain set of challenges.
And, I don’t think those challenges are going to get over any time soon because first of all, we don’t have any idea when COVID is likely to be behind us and when the vaccine will come through -- so timelines are still uncertain.
The economic impact of COVID especially in the Indian economy has been reasonably severe. We have suffered quite a bit and our recovery has been slower than most other economies.
Now with COVID not necessarily coming off, I think the economic challenges are here to stay for a while. The fiscal stimulus which is a little bit on the lower side compared to the rest of the economies is also a challenge, and that should make us cautious.
On a global basis, we have a situation where a lot of central banks around the world are throwing around a lot of money across the world in terms of either easing the interest rates or adding to the liquidity. That is obviously leading the markets moving up.
These are two dichotomic forces that are at play. How to approach this market? Well, from a fundamental basis, one should only focus on earnings, and given the earnings are likely to be weak, we should be exiting the market.
In FY'21 there will be a large de-growth, but FY'22 could be a reasonably good year or at least a more normalized year. The market seems to be building in a reasonable growth around that, and as long as that comes true, I would not be very worried about the market.
One has to remain invested in this market for these particular reasons. And, if and when we see a vaccine coming through or any medical solution to COVID coming through, markets are going to react reasonably positively.
Q) On the occasion of Independence Day – there is another independence which investors are looking for and that is with respect to Financial Independence. How can one achieve amid these COVID times?
A) Well, I don’t think COVID times make any difference to how you achieve financial independence. I think financial independence comes through long term financial planning, and I always keep saying that there is a difference between just saving for the rainy day.
Doing financial planning with a proper attitude in terms of why you’re investing, how long, and in what asset class etc. are some of the questions which investors should answer.
So, to me, financial independence comes from a good long term financial plan, disciplined regular investing without really getting too bogged down by short term market volatility.
And sticking to that plan, number one. And number two, reviewing that plan on an ongoing basis, to ensure that in case any changes are to be made those are made in due time.
The third angle is to create a safety net for yourself pretty much like insurance. So in case, something happens, you do not have a situation where the long term financial plans do not fructify because you did not take that safety net.
The earlier you start the better it is, and let the compounding play out for you. Because people just sometimes don’t realize how compounding is such a wonderful thing.
Starting at the age of 30 years is very different from starting at the age of 35 for retirement. Every year you give it, and it makes a huge amount of difference for the eventual corpus and therefore your financial independence.
Start early, stay disciplined, spend some time looking at it, have a proper plan around it, and remember, it is not necessarily which mutual fund or which stock you’re invested in -- eventually the biggest call you’re taking is the asset allocation call.
Q) Last 3-4 months it has been a traders market with many stocks flying around. And, work from home culture has encouraged many new investors on D-Street via DIY investing. What would be your advice to them?
A) Well, listen, first of all, it is encouraging to see that a lot more people are getting involved with the equity markets. And, I think that is absolutely encouraging. But, at the same time, I think a lot of these investors could be first time investors.
Very young people are trying to dabble in the market for the first time and enjoying the highs or the ‘beginners luck’ in a way to see the market rise from the lows of March 2020.
We have seen a spectacular rise pretty much across the board be it large caps, mid-caps or small caps. Everyone has made money but having said that, people need to realize that equity markets are not a ‘gambling den’ in a way, but are more of a long term asset class.
The equity market is a two-way street. So you will see your up moves, very sharp up moves and you can also get a sharp down move as we saw in February and March this year.
My whole belief is that everyone who invests in equity markets needs to be fully aware of these risks, and then invest. There’s nothing wrong with playing, trading -- doing trading or playing the market for short term gains.
Clearly understanding of both the aspects of investing is extremely important. And at the same time, people need to realize that spectacular gains is just a question of luck.
Equity markets cannot deliver 40%-50% gains every time you invest in them. The longer-term gains are far more mundane, maybe if you look at the last 25-30 years history, we’re talking about maybe low to mid-teen kind of an annual return which could come from equity markets.
Q) COVID will actually change the way investments are being made in India and possibly across the world. Do you think other investment class will make their way into investors portfolio in the post COVID world?
A) Well yes, in case you look at investment in a very holistic manner where you’re talking about the entire financial planning gamut of things, I do sense that people are getting far more aware of managing the risks which come from such episode.
Therefore, life insurance especially the term insurance plans I guess will continue to do well. We’ve already seen some traction across the board within the industry on term insurance.
People would want to diversify their portfolios much more because sitting on a single kind of risk does not really help the portfolio when such a situation comes through.
For example, globally, gold is being chased by investors. Gold went to an all-time high, has come up since then. I would assume not just the asset classes, but also the way people invest whether it’s through digital means, or whether they look for far more advice and planning around it -- will all change.
I think a lot of those things will see a change as we go along. So you’re absolutely right. At any such episode where you see a large amount of turmoil coming through, people’s behavior do tend to change.
And some of those changes could be temporary but some of them could actually sustain and last for years to come.
Q) We’re talking about the life insurance industry. What are the trends which you’re seeing in that particular industry now? And do you see a rise in trend of customers taking insurance products?
A) So look, I think one thing which this COVID episode has clearly informed investors is that one, never underestimates risk.
Risk can emerge from everywhere and it can come at any time. Therefore, it is better to be very well prepared to handle the risk rather than leave it.
Because a lot of times what we perceive is this risk is never going to happen. The idea is not to underestimate the risk. And, I think that lesson has been driven home very emphatically by this episode.
People are far more worried, so you’re already seeing trends around people being far more conscious about bank health insurance. We’re seeing a lot of traction in that area as well in terms of pure term insurance.
They need to have some sort of a safety net for their loved ones. So I sense that is becoming an integral part of the overall financial planning any individual does.
Q) Defence, IT, metals, Pharma --- do you think leaders will emerge from these sectors in the FY21?
A) In FY'21 we have seen pharma and IT doing reasonably well, especially pharma off late. Metals have also picked up but metal is too small a sector in the Indian context to be kind of be leading the market.
IT and pharma, the larger sectors which could potentially be the sectors that do well in this phase, purely because one, they have been the least impacted by COVID. Most of these companies have very robust balance sheets.
The growth hasn’t suffered as much in IT as was anticipated and the costs have come down so that is good for IT. For the pharma sector, actually this has been a boon where this has led to both a volume increase and in some cases pricing increase for some of the pharma companies.
But, I would still not call them leaders, because a lot of water has to flow under the bridge before we really get to that.
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.
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