In an interview with ETMarkets, Kumar said: “We also advise investors to book profit in mid and small-cap stocks and reallocate to large-cap stocks,” Edited excerpts:
Indian market hits fresh record highs in February 2024 with the Nifty 22K mark. As we step into the last month of the financial year – history suggests that Nifty has given a positive return in 4 out of the last 10 years. Where are markets headed?
A) Indian equity markets are currently witnessing a goldilocks situation with steady GDP growth, moderate inflation, stable macro profile, and a double-digit EPS growth. In the medium to long term, Indian equity markets are likely to continue to deliver double-digit returns.
Nevertheless, mid & small-cap stocks are commanding a reasonable valuation premium as of now. Investors should be prepared for heightened volatility in this segment.
As far as short-term expectations are concerned, investors should stay away from predicting any short-term price movement of key indices.
Basis our in-house multi-factor model, Sensex’s fundamental value for Dec’24 is 77,400. The market value of Sensex in Dec’24 could be higher or lower than the intrinsic value basis of various factors.
Given the fact that we are trading near record highs – are you full invested or you have taken some money off to be deployed later?
A) Market trading at a lifetime high has no correlation with expected returns. Fundamentally speaking, in a growing economy like India, the Market should make a new high every quarter in line with EPS growth.Investors should look at returns delivered by Sensex from previous lifetime highs of 30k,40k,50k, etc. Nevertheless, markets trading at lifetime high valuations lower the expected returns. Basis our in-house multi-factor model, we are Neutral on Indian Equity market which means we advise investors to follow their policy allocation.
Large-cap stocks are largely fairly priced basis various valuation indicators. However, we are underweight on mid and small cap stocks at the category level, and advise investors not to give fresh allocation to this space.
We also advise investors to book profit in mid and small-cap stocks and reallocate to large-cap stocks.
How should investors be positioned for FY25 – what should be the ideal asset allocation if the person is in the age bracket of 30-40 years?
A) We believe age bracket should not be used as a factor to determine asset allocation.
Liquidity requirement, return profile, time horizon, and investors’ willingness to take risks and digest short-term volatility are some of the considerations that must be used to decide asset allocation.
We believe that there is no ideal asset allocation. It needs to be customized based on the factors mentioned above for each investor.
Oil & gas, Energy and PSU Index rose more than 30% in the last 3 months – what is driving the rally?
A) Prices of key commodities and metals have, although fallen from peak, still remain elevated from pre-covid levels, thus resulting in higher profitability of many companies in operating in this space
GOI’s focus on capex driven growth has ensured stable demand for metals and other key commodities which has translated into higher profits for both PSU and private companies
Will Dividend-paying stocks be a better play to beat volatility in FY25? What percentage of the portfolio should be placed in dividend stocks?
A) Investors should focus on the total returns which come from both dividend and price appreciation.
Many of the high dividend-paying companies report subdued EPS growth that means investors earn dividends but loose on expected capital appreciation on account of weak EPS growth.
Therefore, each business should be reviewed in the context of short-term and long-term earnings growth, balance sheet strength, business efficiency in terms of current and expected ROE, and valuations.
What role will debt play in the next few years – do you see debt portfolios gaining popularity in retail, and HNI circles?
Fixed income has always been an integral part of most of our portfolios. As it provides stability to the portfolio, it will continue to play an important role in years to come.
However, it is going to be very difficult for investors to outperform inflation on a post-tax basis by investing in bonds and debt mutual funds now.
Therefore, we prefer debt-like solutions such as private credit funds and absolute return strategies to enable our investor to experience superior risk-adjusted returns.
We have seen many SME IPOs hitting D-Street compared to the mainboard so far in 2024 – how are you evaluating this trend – is it a good sign or a sign of caution?
A) It is a sign of caution. Data suggest that most investors fail to generate superior risk-adjusted income from IPOs. We believe that investors should stay away from SME IPOs as of now.
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. These do not represent the views of Economic Times)