Investing into technology companies is a must to participate in the future growth of the world economy. Innovations in biotech, artificial intelligence, robotics, communications and healthcare segments will drive global growth over the next decades. These opportunities are not available in India and therefore an investor has to look outside India to benefit from these investments, Sameer Kaul, CEO & MD of TrustPlutus Wealth Managers (India) said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: Do you think it is time to rejig portfolio given the stellar rally from March lows across indices and the rally seems to be not showing any sign of cooling down?
It is very difficult to time markets as rallies are bought into and falls are sold. Instead, investors should follow a rigorous asset allocation model which is balanced periodically. If this model were to be followed, it would have enabled investors to buy stocks in March and April, when the prices were lower. This same model will now suggest investors to trim stock investments. The percentage of equity in an investor's portfolio should be decided on the basis of various factors including age, objective, liquidity needs and so on. We have found that the "100 – Age = Equity" is a good & simple measure for investors to follow, and should be balanced in a quarterly or half yearly basis.
Q: Do you think one should stay away from market now given the expensive valuations and the economy is yet to show major signs of growth?
There is no doubt that there is a wide chasm between stock prices and the real economy. In this scenario, stocks should be looked on an individual basis. There are several businesses in consumer, telecom, utilities, healthcare and technology industries which have come out as winners in the post-COVID economy, and are most likely to grow in the coming years. Furthermore, we are already in September 2020, and markets are already looking at earnings estimates for FY21-22, where these companies are likely to make a full earnings recovery and also grow. This could limit the downside in these COVID winner segments.
Q: Some experts are saying the rally seen in midcap and smallcaps is largely driven by few stocks. Do you feel so? If yes then when can we see the broader rally? Also will it be a year of Midcap and Smallcap over Largecaps?
The rally in the broader markets has definitely been selective, but cannot be called narrow. Many small and mid-sized companies have shown remarkable resilience in the face of adversity and have been able to adjust to this new normal. We have also seen selective instances of debt reduction in this segment in the last few years, which indicates strength of these businesses. For a full blown bull market across all stocks, GDP growth has to go back to +6 percent or more, which will lead to job creation and improvement in the service economy. There is a valuation gap between small/ midcap and largecap stocks, which could drive a short term rally in small/midcap. However we are underweight small and midcap stocks given the economic challenges.
Q: Do you think liquidity, the major driver for rally so far, is the key risk for market? Also what are other risks which one should consider while looking at investment in equity?
Liquidity from foreign investors is certainly a major driver of the market rally in the last few months. This liquidity stems from the expansion of central bank balance sheets in developed economies like USA, Europe, UK and Japan. Given the recent statements made by the US Federal Reserve, it seems that this liquidity will remain for some time to come. Therefore the risk shifts from liquidity to aversion, meaning any event which could trigger a withdrawal of dollars from emerging markets back to the US. This is a real possibility due to various factors – US election results, growth scare, resurgence off virus, geopolitical tensions and so on. The other key risk is the exit of direct retail investors from the markets, since they have become a large chunk of the new money in markets in the last 6 months.
Q: Lot of brokerages tied up with global investment firms like Vested Finance to give their customers opportunity to invest in global stocks like Apple, Amazon, Facebook etc. But do you think these stocks look expensive now as majority of global markets are either at all-time highs or near to that? Also is it really a great opportunity?
Investing into technology companies is a must to participate in the future growth of the world economy. Innovations in biotech, artificial intelligence, robotics, communications and healthcare segments will drive global growth over the next decades. These opportunities are not available in India and therefore an investor has to look outside India to benefit from these investments. We believe that instead of buying individual companies, it is better to buy specific funds which invest into these high growth areas.
Q: Do you really see strong momentum in primary market in coming months as many experts said lot of IPOs are going to hit Dalal Street in next few months?
Demand in primary markets is a function of what is on offer. Even during the lockdown, we have seen an insatiable appetite for quality Indian businesses – so many listed companies have raised capital via QIP, and were oversubscribed! Good quality businesses like financial intermediaries are likely to see robust participation in their upcoming IPOs.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.