Expecting it to be a better year?
Rajeev Thakkar: Hopefully, yes. Better year, I am not so sure because last year returns have been one of a kind and it is very-very difficult to better that. If we eke out a reasonably positive year in the 12 months ahead, I think that would be good.
So, low single digit, high single digit?
Rajeev Thakkar: Difficult to say. It is a coin flip, but somewhere in that range. I think fixed income will be a tough competitor to equity is my guess. Again, no one knows, but my guess is fixed income also has a reasonable chance.So, then, why you are expecting such a less return, other than valuation and earnings being a concern at this point of time, anything else that is worrying about the equity markets?
Rajeev Thakkar: Typically, it is valuations. So, my favourite example is things like Infosys and Wipro, if you bought them in early 2000, let us say Jan 2000, in a decade Infosys probably increased its profits from 250 crores to six-and-a-half thousand crores, but the stock gave barely National Savings Certificate returns over 10 years. So, if starting valuations are very-very high, then it becomes difficult to generate returns. So, if we really look at our portfolios and the stocks that are there, all the themes that are running, how many triple digit earnings multiple stocks are there and these are not smallcap companies, so that is the challenge.
But you are talking about the triple kind of PE ratio companies and Trent comes to mind, because at 5000, we thought it is expensive, at 6000, same thing, at 8000, we are saying that, and now perhaps, street is factoring in 10,000. So, I do not know, maybe the street is willing to pay a price for that growth and that is why India is still high in the pecking order.
Rajeev Thakkar: So, whenever excesses happen, either on the upside or downside, it is very difficult to call tops and bottoms. Any investor will either sell early or will either sell a bit late. While buying, you will not catch the bottom, while selling, you will not catch the top. So, you have to look at your portfolio weightages, the weightages of individual names in your portfolio. You should try positioning your portfolio in that manner. Something which is expensive can become more expensive, something which is cheap can become more cheap. You cannot prevent that. But what you can do is prevent huge damages to the portfolio when the day of reckoning eventually comes. So, then which is that one sector, where you are assigning the highest weightage right now?
Rajeev Thakkar: So, private sector banks, I think lot of people as Anisha was also pointing out lot of people have that as a consensus buy and some of the names are available at almost pre-COVID prices, whereas profits have grown and things like that, so that is one space where I think valuations are still attractive.
But then as again private sector banks was a consensus buy six months back also, but then we have not seen much of gains coming in, neither FII flows have come in into private sector banks. In fact, they have been the highest seller when it comes to financials in the last six months. So, what is that one thing that has still been concerning when it comes to the private banking space?
Rajeev Thakkar: So, if there were no concerns, then you would not get the valuations that you are getting. So, typically the average person who is buying and selling looks at one quarter, two quarter kind of thing. The differential perception comes when you are willing to wait longer than the average person. So, if people are bullish on India, if people are saying we are going to grow GDP, if we are going to have housing for all, if we are going to have so much of capital expenditure in energy transition or in shifting from fossil fuels to EVs or have roads, rails, will that not result in lending growth? Obviously, it will result in lending growth.
But in any case, I will take your time and ask you some of those questions that I wanted to discuss as well. And the first one will come up for you on the screen and that question is which is going to be the best asset class in Samvat 2081? And I ask you that because, of course, there is Indian equities which is our all-time favourite. Global equities in terms of China as well as US has been doing okay and China is a great tactical trade as per many. Gold, what 30% up this year already and people are expecting it to go further and of course the interest rate cycle turning. With that context, which would you say would be the best asset class?
Rajeev Thakkar: So, asset allocation would be all of the above. So, typically people would have some mix of this. But if I had to select in terms of attractiveness, I think B and D would be good. So, fixed income securities and global equities.
I have to kind of dig deeper when it comes to debt as to what your view is. So, then how are you looking at debt if anybody had to allocate right now, what will be the tenure that you will tell them to deposit money into India, US, where are you looking at that?
Rajeev Thakkar: Largely India. Most Indians have opportunity to invest in Indian debt. Investing abroad especially in fixed income is challenging with the tax collection at source and the multi-country taxation and things like that. So, when bank CDs for one year are in the region of 7.5, that is an attractive space. Also, if someone wants to lock in money as a retail investor, RBI bonds which on a floating rate basis are 8 plus percent, things like that are available today.
It seems like you are expecting the Indian equities to deliver 0% to 5% kind of returns because if you are talking about debt, giving 7-8% and that being good enough, what would be your sense as to what the Nifty return for next year will be?
Rajeev Thakkar: I think it will be somewhere B or C. Again, it is a guess. Around 9%, 10%, 11%, 12% kind of numbers. I do not expect outsize gains this year. But again, it will depend on various events and supply is another factor to watch out for. Huge amount of fundraising is going to happen from the markets both in terms of IPOs, QIPs and offerings.
Which is the biggest risk? As you talked about, there are a lot of outside factors, what within this would you call the biggest risk for the markets?
Rajeev Thakkar: Valuations out and out, C.
Which category of mutual fund will you go for and this is interesting because it is coming from you who has been doing this day in and out, which one is the best place?
Rajeev Thakkar: I think small and midcaps have run up quite a bit. Thematic typically is a bad idea. I will go with largecaps.
And let us get sector specific then. Financials, of course, you called out, so I am guessing your view is going to be that, but do you see some sort of upside on IT and energy or that is a bit of an avoid?
Rajeev Thakkar: Maybe yes, IT and energy but financials I think is the best placed.
Given the fact that mutual fund returns have been very strong for the last quite a few years and that is the reason why SIP flows have also increased but given that now market expectations are of muted returns, do not you think that would lead investors to stop their SIPs? What would be your message for new investors?
Rajeev Thakkar: So, a person who joins the workforce at the age 20 or 25 will regularly invest in EPFO for 35 to 40 years. People take insurance policies and again pay premiums for decades. I do not see a reason why SIPs need to stop based on the near-term returns. It is largely a strategic asset allocation call. A young person should definitely participate in the India growth story and keep investing in equities for a substantial portion of her or his monthly savings. I do not see that as a challenge. The worrying part is that some of the newer investors, as you pointed out, have come in and only seen rising markets. They have not seen a fall in stock prices ever. Now, will they get unnerved with somewhat shaky markets? It is a question where there are no clear answers. We will only know when it actually happens and we will see the investor behaviour.
What is your multi-bagger idea? I believe you cannot give an idea, but any sector other than financials that could be a big multi-bagger for the next five or ten years at least.
Rajeev Thakkar: Let us put largecap funds and debt funds and hybrid funds so people can buy mutual fund units and have multi-baggers over the decades.