Which is better investment? FDs multiplied wealth by 26x, gold by 32x and Sensex by 374x in last 39 years

We believe equity should have large proportion in a portfolio if an investor intends to create wealth and remain invested for long-term, Arun Thukral, MD & CEO, Axis Securities., said in an interview with Moneycontrol’s Kshitij Anand.

With regards to rupee's fall Thukral said that the USD/INR duo will stay in the 72-74 range in the near term. Edited excerpt:

The govt introduced a slew of measures to control CAD and stem rupee's fall, but it seems like RBI might have to raise rates. Do you agree?

We expect the USD/INR to stay in the 72-74 range in the near term. The rupee has depreciated owing to the strength in the dollar on the back of improving US economy and rising US interest rates.

The rupee fall was triggered by the Turkish financial crisis and fears that it could spread to other developing world economies. The US-China trade war concerns are exacerbating the situation.

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Domestically, the anxiousness of importers contributed to the fall. Further, rupee depreciation will call for concerns as thereafter the Reserve Bank of India (RBI) will have to change stance and increase interest rates in forthcoming policy or maybe mid-way.

Another thing to note is that historically RBI has maintained the gap between the US and domestic interest rate. As the US is expected to increase interest rate twice in the coming months, RBI will have to increase the rates in the next 6-12 months if they want to maintain the gap.

What is the extent of the impact of falling currency on various sectors?

Export-oriented companies such as IT, pharma and textiles tends to gain as the currency falls while it is a cause of concern for importers and companies with foreign currency debt as the cost would increase for latter thereby creating pressure on margins to the levels currency has not been hedged.

Falling currency along with already rising crude oil prices and widening current account deficit (CAD) is likely to push inflation putting pressure on the government to raise rates.

However, Indian govt. is working to ensure smooth supplies from low-cost crude exporters. RBI has foreign exchange reserves to the upwards of USD 400 billion and would be able to use it as their defense against rupee depreciation.

Hence, the INR depreciation would be a concern for the near term, but we expect things to be put in the order over the long term.

In an environment of rising interest and bond yields, should investors change their approach towards investing?

During the last 39 years, Fixed Deposits have multiplied wealth by 26 times, Gold by 32 times, Real Estate by 100 times, Sensex by 374 times.

Over the years we have seen interest rates rise and fall and markets at their highs and lows. Despite all these markets have provided good returns beating the inflation over a long period thus creating wealth for long-term investors.

We believe equity should have large proportion in a portfolio if an investor intends to create wealth and remain invested for long term.

Considering rupee tailwind, is it time for investors to go overweight in IT and pharma sector?

Any export-oriented company stands to gain when INR depreciates. Companies in the IT sector having large exposure to the US would benefit the most as a majority of their revenues are earned in US dollars.

Pharmaceutical companies would also gain from INR depreciation as exports account for more than 50% of their revenues. Though the pricing issue still persists, the pipeline with the Pharma companies has been improving which will help them have better future.

The benefits from INR depreciation would depend on the hedging strategies of these companies as well. One should also watch for debt levels in US currency as a large debt exposure could reduce the forex gain occurring to these companies.

FIIs have been sellers in recent times while domestic retail investors are filling the shortfall. Do you think the momentum is likely to continue?

We have seen massive flows of investible surplus from retail investors towards equity markets post demonetisation. Demonetisation has led to the financialization of the economy and there has been a shift from physical asset to the financial asset by domestic investors.

If you notice, the SIP as a concept has struck a chord with retail investors, SIP folio count has multiplied fourfold to 2.3 crore by July 2018 from 0.6 crore in March 2014; average monthly Inflows through SIP route now stands at Rs 7,500 crore.

Moreover, the average monthly SIP amount has also increased over last 3 years - it was Rs 3,660 per month in FY17, Rs 5,600 per month in FY18 and Rs 7,277 per month in FY19.

So far in CY18, whatever has been sold by FIIs was absorbed well by mutual funds. Despite the corrections in the domestic equity market the flow has not stopped which shows the sticky nature of SIP and this momentum is likely to continue.