With the increasing penetration of organized retail and e-commerce, as well as rising disposable incomes in rural and urban areas, FMCG companies are well-positioned to capture the India growth story, said Abhijit Bhave, Managing Director & CEO at Equirus Wealth in an interview to Moneycontrol.
According to him, FMCG also offers stability in uncertain times, making it an attractive long-term investment.
In case of pharma space, investors should focus on companies with robust R&D pipelines and strong balance sheets for sustained returns, said Bhave with more than 25 years of experience in scaling up wealth management ventures. He had earlier worked with Deutsche Bank, HSBC, ICICI Bank, and Karvy Private Wealth.
Do you see big opportunity of investment in FMCG space?
Yes. One would remember in school we used to write essays on the topic “Indian Population - boon or bane”. India’s demographic dividend continues to remain a boon for the FMCG sector & hence this sector continues to present a compelling investment opportunity. Despite the challenges posed by inflation and shifting consumer preferences, the sector is resilient, driven by rising demand, especially in new geographies, including tier 3 cities & towns.
With the increasing penetration of organized retail and e-commerce, as well as rising disposable incomes in rural and urban areas, FMCG companies are well-positioned to capture the India growth story. Additionally, the ongoing shift towards premiumization and health-conscious products is creating new avenues for expansion. As a defensive sector, FMCG also offers stability in uncertain times, making it an attractive long-term investment.
Do you still expect significant run up in the pharma space?
The reality is that as human beings live longer, have improving lifestyles & also increasing stress as a side effect, the pharma sector will continue to enjoy increasing demand. The pharma sector has had a remarkable run, especially during & after the pandemic, but I believe there is still potential for growth, albeit at a more measured pace. The focus on healthcare infrastructure, increasing health awareness, and the push towards innovation in drug development are the key drivers.
Moreover, the global demand for generic drugs and biosimilars continues to rise, providing Indian pharma companies with a strong export market. However, the sector might face headwinds such as pricing pressures and regulatory challenges, which could temper the pace of growth. Investors should focus on companies with robust R&D pipelines and strong balance sheets for sustained returns.
Are there sectors that you would want to avoid?
There is an old Hindi saying, which roughly translated says “A lotus blooms even in mud”. The same is true for select stocks across all sectors, even those that may not be doing that well. At Equirus Wealth, we believe in a bottom-up stock picking approach and both own PMS solutions (small cap and multi-cap strategies) remain sector agnostic. Having said that, for retail investors, we would suggest maintaining diversified portfolios through mutual funds as there may be certain sectors that would face structural, cyclical, regulatory or business model risks at the moment.
For HNI investors we suggest focussing on investing in fundamentally good but under-valued stocks but only after detailed self-study or else with assistance from a domain expert, who will guide them through the various complex financial ratios as well as qualitative assessment of future earnings potential of the selected companies.
Is it the time to stay away from smallcap and keep portfolio tilted towards mid-largecaps?
The key always lies in maintaining your asset allocation based on individual risk profiles. In addition to this within equity, one should look at how much is the sub-asset allocation across largecaps, midcaps & smallcaps. Smallcap stocks have had an impressive run, but they also come with heightened risks, especially in volatile market conditions; one of the big ones being limited liquidity affecting price movements, despite good fundamentals.
Given the current global geopolitical & economic uncertainties and possible sell-offs due to perceived high valuations, it might be prudent to tilt the portfolio towards mid and large-cap stocks, which generally offer more stability and are better equipped to navigate economic challenges. However, this doesn’t mean completely avoiding small-caps. Selective exposure to quality smallcaps with strong growth prospects and solid financials can still add value to a portfolio, in the long run through multi-bagger returns. The key to investing in smallcaps is to balance risk and reward by focusing on fundamentals and staying bravely invested through short term market downturns, typically over a period of four to five years.
Are you confident about the beginning of interest rate reduction cycle from next month onwards?
While there has been speculation about a potential interest rate cut, I believe it’s important to temper expectations, especially in India. Central banks across geographies, are likely to remain cautious, considering inflationary pressures and global economic uncertainties. A premature reduction in interest rates could undermine efforts to keep inflation in check. That said, in India, if inflation remains around RBI’s target range of 4 percent & the tolerance band of an additional 2 percent and global geopolitical & economic conditions stabilize, we could see a gradual shift towards a more accommodative stance & a reducing interest rate cycle in India.
Disclaimer: The views and investment tips expressed by investment 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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