In the last five months, the US Fed has printed almost $4 trillion, which is unprecedented in the history of the US Fed since 1913. This amount is approx 140% of India’s overall GDP, Amit Jain, Co-founder & CEO, Ashika Wealth Advisors, said in an interview with Moneycontrol’s Kshitij Anand.
Global liquidity in the stock markets along with lifetime low-interest rates in the US treasury are supporting market, Jain added.
Edited excerpts:Q) We are trading at high valuations – US markets have touched record highs. Do you think we have touched an intermediate top – what is your call on equities for the short term?
A) Yes, you are right that the US market is back to its lifetime high due to excessive money printing by the US Fed, however by keeping an eye on the current geopolitical situation, it looks like an intermediate top for the US market, with limited upside in the short term.
At this moment, I am not shorting the market, as in my view, shorting US market means, shorting US Fed, which as an individual Investor I don’t have the power to go against the US Fed. But, I am sure, I am not taking any fresh long position in the broader market, except in few sectors.Q) Global diversification is the theme that has picked up momentum in the week gone with 3 brokerage firms announcing that their platform is streamlined to invest in US markets. What is the kind of percentage one should allocate globally?
A) Yes, Global diversification is the theme nowadays, as almost all ultra HNI investors are looking to have a pandemic-proof portfolio with the right proportional mix across major stock markets of the world.
Most investors are looking to have exposure to the US, Europe, and Australian markets. On 27th March, we also advised our investors to have 20% exposure to international equities, and other asset class, as it is a natural hedge against any depreciation in INR.
It is important to have exposure to global tech companies mostly from the US, as during the COVID-19 period this sector has been “Investors Bazooka".
If you observe, the US market, and particularly NASDAQ has already touched a new high. Even the Indian IT Sector has given almost 70 percent ROI in the last five months.
In our view, post-pandemic, this sector may continue to do well as there are a lot of cost control initiatives taken by Global IT firms with their continued top-line growth. Hence, it is advisable to have exposure to these international markets, and sectors at the right entry point.Q) What are the risks that one should be aware of when it comes to global diversification?
A) In our view, whenever you take exposure to international equity or any other asset class, then you should have a directional view on INR compared that to any particular currency, in which you are investing.
If you think INR is going to depreciate against that currency then you may invest or vice-versa, keeping other factors constant. Also, you should be well versed with the political, legal, and regulatory framework of that country.
In the current scenario, amid geopolitical tension, a lot of countries are adopting policies of “Protectionism”, which may not be very favorable for international investors.
Also, while investing in the international asset class, investors should focus post-tax returns in hand rather than gross returns, as it may vary from country to country.Q) Apple $2trn Mcap is the equivalent of Mcap of BSE listed companies. This is massive wealth creation by any company. What are your views? Do you think any Indian company would climb to such a height in the near future?
A) Yes, you are right Apple has recently touched Market Cap to $ 2 trillion which is almost equivalent to the entire Market Cap of all companies in the Bombay Stock Exchange.
This is lifetime high for the stock, however, this may be an intermediate peak for the stock as well. As an Indian Investor where risk-free returns are close to 6% + Rupee appreciation, then it may not be a great bet to enter at this moment. We can have better entry points soon.
Also, if during current geopolitical tension between the US & China, if Apple shifts its manufacturing base from China, even partially, then, it may have a high cost impact on their bottom-line.
For any Indian Company to reach this valuation may be herculean task even in the long run. However, any Indian IT Company which focuses on AI & automation as a business model, may have a chance to reach this valuation by 2040. There are a couple of IT companies, who are working with this vision in the long run.Q) Small & Midcaps are on the cusp of rerating that’s what a Morgan Stanley report highlighted. What is working in favour of the broader markets?
A) I think there is only one answer to this question i.e. global liquidity in the stock markets along with lifetime low-interest rates in the US treasury.
In the last five months, the US Fed has printed almost $ 4 trillion, which is unprecedented in the history of the US Fed since 1913. This amount is approx 140% of India’s overall GDP.
If I can say it on a lighter note, then we can say the US Fed has created another India in just five months. This excessive liquidity is driving the Global Stock Market which is completely disconnected from the Economic performance of the Countries.
In India, NIFTY is already trading at P/E of 32, which is one of the richest valuations we have seen in the recent past. Now, once the NIFTY valuation is back to a lifetime high, now there is a high possibility that this Global liquidity may get into midcap stocks, which subsequently, may take midcaps index higher.
I am sure all active investors must remember the valuation of midcap index P/E close to 106 in December 2017 due to very high inflow of money in mutual funds post demonetization period, & since then Investors hardly made any money in midcaps.
So in our view, in this liquidity-driven rally, the risk-reward ratio may not be very favorable, so all Investors should be very cautious with their entry point in markets.Q) Most policies announced by the government are primarily focused on the rural theme. Which are the sectors or stocks by which one can participate in this theme and make a ‘Bharat-centric’ portfolio?
A) The government has announced various policies and schemes to boost the 'Make-in-India' theme along with the “Digital India” initiative. This may have a positive impact on Agriculture, Manufacturing, Infrastructure, IT & Two-wheeler sector from a long term perspective.
Earlier in the 2019-2023 phase, the government announced a plan of Rs. 100 lakh crores for developing Infrastructure in the country along with digitalization of one lacs villages.
Once this money is spent by the Government, then it may have a multiplier impact on our Rural Economy.Q) What is your view on the packaging, multiplex space? It has been buzzing for some time now? The other theme which is gaining momentum is Utilities especially after the PM address on Independence Day.
A) Packaging has been one of the buzzing sectors for quite some time & rightfully so, during this pandemic, we have witnessed a shift in non-packaged items to packaged items due to infection fear.
Even from here-on, this sector may continue to do well in the medium term. The multiplex might take some time to revive as the lockdown jitters have already shut down the theatres for quite some time.
Due to the uncertainty of the lockdown period, most multiplex outlets are shifting to the revenue sharing model rather than the fixed-rent model, so may not be very positive for the sector in the short term.
Also with the increasing popularity of subscription-based viewership, these multiplexes and theaters might take a hit and remain in a pause in terms of growth in the bottom line for some time.Disclaimer:
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