What does HNI-meter say about investing in equities?

The macro factors are attractive, and general elections typically result in better economic activity, which the markets will discount six months ahead. So, he believes the general mood of HNIs is to build positions. Plus, the intense activity in small- and mid-caps corroborates this effect, he thinks.

Prateek Pant, Chief Business Officer at WhiteOak Capital Asset Management, echoed a similar view. He said, "Confidence of investing in India is seeing a strong appetite across asset classes from HNIs," while explaining that India will have the most favorable demographic trends among the large economies over the next two decades. Recent structural reforms, coupled with the thrust on policymaking towards capacity building, will aid sustainable economic growth, he said.

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What has also helped bolster sentiment is that Q4 FY23 earnings were quite good.

"We also saw record flows (around $5 billion) from foreign investors in May, which led to a smart move in the markets," Iyer pointed out. She said that a fair bit of forward optimism also seems to have been factored in. Hence, at the current juncture, she thinks the market valuation is neither too cheap nor too expensive.

Further, the consensus view on forward earnings seems to be reasonably good, which also is seemingly baked into the current prices, she said.

Amid a challenging global macro backdrop, India Inc’s profitability remained healthy in Q4 FY23, which was in line with expectations. Motilal Oswal Financial Services pointed out that its coverage universe reported the highest earnings growth in the last four quarters.

Even Goldman Sachs thinks resilient macro and an improving micro-environment are conducive to strong medium-term growth in India and recommends investors build exposure in Indian equities, focusing on pockets of the markets that offer strong future growth prospects.

The equity market in India has offered outsized stock returns and alpha opportunities for emerging market (EM) investors. "Over the past two decades, about 60 percent of the current BSE 200 stocks would have outperformed the benchmark. Nearly 40 percent of the current BSE 200 stocks have generated more than 20 percent annualised returns over the past two decades, double the 20 percent of stocks for the broader MSCI EM," the foreign brokerage firm highlighted.

Equity vs debt

Equity mutual funds witnessed a net inflow of Rs 2,906 crore in May 2023 compared to Rs 5,275 crore in April 2023, which was the lowest recorded inflow since November 2022 when Rs 2,224 crore came in. This was the 27th consecutive month when the asset class garnered net positive flows. The moderation in inflows was largely due to investors cashing in on recent gains.

As far as inflows to debt schemes are concerned, debt funds saw a net infusion of nearly Rs 46,000 crore, which has more than halved from the inflow of Rs 1.06 lakh crore seen in April.

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Over the long term, equities have generated the highest returns across all asset classes, according to Pant. He added that, in fact, seasoned investors with longer time horizons have viewed volatility as an opportunity to increase exposure to risk assets. However, with inflation peaking and rate cycles in a phase of prolonged pause, there could be tactical opportunities in debt over the near term.

Pant said, "Our asset allocation valuation models are indicating an equal weight position in both debt and equity."

Pant believes that India offers a "very attractive structural investment opportunity". He sees India as the most attractive market for active managers considering it is one of the under-researched markets providing strong alpha generation potential and has superior corporate profitability and asset mix, which will lead to a resilient earnings growth profile and an attractive return on equity (RoE) profile.

"From a wealth creation perspective, equities should be the preferred mode of investment. For wealth stability, debt has to be the category to invest in," believes Lakshmi Iyer, Chief Executive Officer (CEO)-Investment & Strategy, Kotak Investment Advisors Ltd.

Iyer said the general investment climate is improving, which is good from a cash deployment point of view. Investors have been allocating money across asset classes on the basis of their individual risk appetites.

Meanwhile, Kulkarni of Axis Securities PMS pointed out that "debt vs equity is an allocation theme".

Preference depends on the risk appetite, he went on. For a person with a moderate risk appetite, equities are preferable as, over the longer term, equities will compound at around 12 percent, while debt returns will be in the single digits, he explained.

"The double-digit returns create a significant wealth effect, whereas single-digit returns will only compensate for inflation. Thus, investors with moderate risk appetites should invest in equities with long-term investment horizons."