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DAILY VOICE | Trust power of compounding! Sensex delivers 50-bagger return in 30 years: Prathit Bhobe, Tata AMC

The government’s focus in the upcoming Budget is likely to be on providing acceleration to the economic recovery which has been underway over the past few months, says Bhobe.

January 29, 2021 / 10:23 AM IST

Prathit Bhobe who has about two decades of experience in the capital market says that there is a temptation for investors to cash out when they see a return. One feels rich by cashing out, but one becomes wealthy by compounding, he said in an interview with Moneycontrol’s Kshitij Anand.

Bhobe who is a CEO & MD, Tata Asset Management highlighted that 42 years back Sensex was 100 and it is up 500 times since then. In 1990, Sensex touched 1,000 for the first time and 30 years from then led to a 50-bagger return.

Q) Sensex@50K! A landmark day for Indian markets, but then we saw a fall just days ahead of the Budget. What are your views? What should investors do now if someone plans to put fresh money?

A) Time and again, the market reminds us that it is a voting machine in the short-run and a weighing machine in the long-run. The first half of last year was only about the virus, which sent Sensex quickly down to nearly 25000 in March and 9 months later on hopes of vaccine, earnings and economic revival have brought it to nearly 50,000.

This displays the non-linear nature of markets. While we remain quite constructive on equities, due to the sharp rise there could be corrections through the way, and one has to be prepared.

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Staggering investments through SIP into equity or investing in lump sum in Balanced Advantage fund is advisable.

Q) We are just a few days away from Budget 2021. What are your key expectations from the Finance Minister?

A) Government’s focus in the upcoming Budget is likely to be on providing acceleration to the economic recovery which has been underway over the past few months.

Government spending targets will be the key and aided by i) the strong recovery in nominal GDP growth in FY22 and (ii) relatively higher tolerance for fiscal deficit (though it will be materially lower than the FY21 levels).

We expect the focus of spending to be on healthcare, housing, and infrastructure. On the reform front, the government is likely to target PSU reforms (including banks) and privatisation as one of the key areas to raise capital over the medium term.

As we move ahead, Government’s tax revenues are likely to recover, coupled with a likely start to manufacturing investments due to demand uptick, Government’s PLI can lead to a revival in both public and private investments.

Real estate revival is already underway and driven by genuine demand this time as low-interest rates and stable real estate prices have improved affordability; Government has the potential to design targeted incentives as a revival in real estate capex, this will have benefits throughout the economy.

Production linked incentive (PLI) scheme has seen early success and further momentum can be imparted if it can be backed up by dedicated export zones with associated infrastructure and easier approvals.

More emphasis on devising alternate funding mechanisms for infrastructure investments is expected.

Q) With markets hitting fresh record highs what should investors do with underperformers in their portfolio?

A) Mutual fund investments are to be made with a long-term view in mind. Any change in assets is to be done only, if the current asset allocation is not aligned with your life goals or risk appetite.

In case the fund has been underperforming its benchmark, it is important to understand the reasons before making any changes.

With the market moving up to the current levels, the performers would have gained a higher share in the portfolio and exposure towards underperformers would have reduced.

Q) Which sectors are likely to be in focus in the next decade?

A) Last decade was dominated by consumption and banking and while that is likely to continue in a domestic-centric economy like India, we also expect the next decade to see potential multi-year growth in IT services (digitalisation of the economy), Pharma/healthcare, and Infrastructure.

It is important for a country like India to generate a recovery in the investment cycle in households (real estate), private sector (manufacturing), and public spending (infrastructure).

Q) What are your views on December quarter earnings so far? Do you think that earning upgrades will only increase from here on for India Inc.?

A) We are seeing a continued pace of earning upgrades in the December quarter as well, starting with IT and continuing with the manufacturing/consumption sector so far. We expect the FY22 earnings estimates to end only 5-7 percent below the pre-COVID-19 estimates eventually once all the upgrades are done.

Q) How has been your journey in equity markets as Sensex rose from 100 to 50,000?

A) I started my career in the mid-90s and equities have always fascinated me. Despite having multiple bull runs and bear hugs the index has scaled new heights.

We have seen all types of events from liberalisation to a nuclear test, Kargil war, 9/11 attack to corporate frauds to GFC. But, the markets have been able to climb the wall of worries.

Q) The way the market moved in the last few months and if you have kept faith in the equities when it was going down suggest the power of spending time in the market rather than timing the market. How can investors stay in markets for long term wealth creation?

A) Buffett is one of the most successful investors in the world who started investing at the age of 11. He has been investing for nearly 7 or 8 decades. While his strength is capital allocation, his secret is time.

In equity markets you have to choose between Big and Fast. If you save and invest well, you can earn Big OR Fast. 42 years ago Sensex was 100, and it has been up 500 times since then. In 1990, Sensex touched 1,000 for the first time and 30 years from then led to a 50-bagger return.

There is a temptation for investors to cash out when they see a return. One feels rich by cashing out, but one becomes wealthy by compounding.

Just by merely investing in Sensex alone, the investor would have made very good returns while actively managed funds would have done much better.

Market returns cannot be controlled by the investor. They are better served focusing on what they can control i.e., patience and not unnecessarily interrupt compounding.

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.
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Jan 29, 2021 07:49 am

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