Global funds doing well, China, Korea and Brazil are a good bet, says PGIM India CEO Abhishek Tiwari

Abhishek Tiwari CEO PGIM India

The Indian market has experienced considerable volatility in recent years due to persistent global headwinds. Despite significant disruptions, including the Covid-19 pandemic, the market has demonstrated resilience but valuations have spiked.

In an interview to Moneycontrol, PGIM India AMC chief executive officer Abhishek Tiwari offers insights into key earnings and valuation trends along with impact of regulatory developments, including the reclassification of real estate investment trusts (REITs) and the emergence of the GIFT City. Edited excerpts of the interview:

Can you talk about the market's  performance in recent years and its relation to earnings?

If you look at hard data, it is worthwhile to rewind and go back to 2018. It is interesting to look into two parts — from 2018 to 2023 and then 2023 to now. So if you look at 2018 to 2023, it will actually surprise and make you happy to know that the market was following the wise dictum, which is to say if earnings were at an X number, then your outcome in price performance was also the same number.

If you put that into context, if large caps, as an entire group, delivered 11 percent earnings, their price performance was also as a whole about 11 percent. So it was like a mirror image. And that's what we have learned — ultimately in the medium to long term, your stock prices are essentially slaves of earnings.

Come to 2020 and between then and now, if you look at 2023 and 2024, this number was all over the place. While the earnings grew and may be your consolidated earnings number was somewhere in the range of about 9 percent consolidated, performance went all the way to 70 plus.

It's important to break it down, find out where was the gap or where is it that this anomaly essentially existed. And the reason I'm using the term anomaly is that you will see this has come out of a part of the market, which has not performed for very long, which is a so-called value and cyclical part of the market.

So while many were celebrating aggregate performance, the fact is that there were only a few funds in the small-cap category that outperformed the entire benchmark. That is because that part of the market was not understood. So why did that happen? We can argue but a lot of answers lie in the fact that you were coming out of a demand environment disrupted by Covid, with people realising that all that demand that was destructed was now pent up and used it into the economy.

What is your outlook for growth and value stocks?

We believe that the market is cyclical. Value has had its moment. The premium for growth stocks or quality stocks remains highly attractive and it is going to come back. We feel there is a 12-month horizon where growth, quality, and high momentum names should continue to outperform value. If you're looking at an equity portfolio, you should typically be 70-80 percent in growth and 20-30 percent in cyclical value, depending on your risk appetite and investment time horizon.

Are global funds attractive now?

Global funds are relevant, especially if you look at areas like China, Korea, or Brazil. If you're thinking about exposures in sectors or countries that are not represented here, you could look at those as an opportunity. The important thing is to see how you fit it into your overall portfolio rather than pick and choose standalone.

Our global funds pick the top quintile of growth (EPS) in each market. For example, if Chinese tech looks poised for rapid growth, they will pick those stocks. They're very agnostic of benchmarks, with an active bet profile over 90 percent. So they are truly active and differentiated.

Which sectors in India are structurally promising?

Healthcare is very interesting because it's a large sector not well appreciated by investors yet. The phenomenon is about innovation and technology, enabling better and third-level care. Specialty chemicals are compelling as India grows as a global manufacturer in this sector. However, we are cautious about IT due to visa restrictions and export uncertainties, and BFSI given economic and policy factors.

What is PGIM India’s stance on specialised investment funds (SIFs)?

We go through all these opportunities and like what can be done in SIF but we are very conscious about whether we have the talent to deliver the experience that you need for a product like that. That may or may not be available, so we are cautious and not rushing into SIF at the moment.

What does reclassification of REITs as equity instruments mean for mutual funds and investors?

REITs being classified as equity (subject to government amendment) means they will enjoy equity taxation benefits and can be included in equity mutual fund portfolios. Since REIT income primarily comes from rental yields, behaving like dividends, this makes more sense. We expect more inclusion and popularity of REITs in equity portfolios.

What is PGIM India's view on mutual funds domiciled in GIFT City? Are you planning one?

GIFT City offers regulatory and tax advantages including 10-year tax holiday, exemption from capital gains tax on transfers for non-resident investors, no TDS, and easier repatriation. Mutual funds domiciled there can access global investors more easily and offer innovative products. PGIM India is actively considering how to best establish presence and expand offerings via GIFT City.