"See money-making opportunities in high quality mid and small-cap businesses'

Q: What should be the investment plan for a person in the age group of 25-30 for 10 years?

Given the time frame of 10 years, which is around 25 per cent of an average working life span, one can make more money by making lesser mistakes than by taking more risks, as is usually believed.

Equity is one such asset class which would if given time to incubate and nurture, generate disproportionately large sums of money over a longer period of time. A good portfolio management service should ensure that your investments are in high-quality businesses which chart their own growth trajectory, irrespective of market gyrations.

Q: What are those key sectors that one should have in a portfolio now to earn multi-bagger returns by 2022 and why?

Some of the more obvious “verticals” one looks as growth businesses are Pharma, Technology, Speciality chemicals and the like. However, we change the lens and look at a “horizontal” called “Contract Manufacturing” across industries, it opens up several new dimensions of growth.

With a clear centre backed push to increase local manufacturing, as well as the world’s attempt to look at a China plus one strategy to de-risk global supply chains, Indian firms have the opportunity of a lifetime. Whether it CRAMS in the pharma sector or outsourcing in the speciality chemicals one; whether it is the manufacturing of white goods for global manufacturers to becoming an auto ancillary hub for the world – there will be several multi-billion dollar opportunities which will be up for grabs across industries.

Q: What could be spoilsport events that could dent sentiment in the second half of FY21 and what could be favourable events that could take the Nifty to previous record high levels in the second half of FY21?

Too much ebullience in terms of growth expectations versus ground realities might result in running corrections for the next few months. Also, event risks like the outcome of US elections and the continuing geopolitical environment in the sub-continent could lead to volatility in the short term.

Having said that, one is pretty much unaware of the outcomes and consequences of these events. Like in 2016, markets thought Trump being elected might be detrimental, but they had the best run post his election. Some of these events will keep playing out at different times – one should keep an eye on the valuations. Corrections need to be bought in and exuberance needs to stay away from. The price you pay or valuations at which you buy will help you ride this volatility.

Also, it’s not just large established companies, but also high-quality businesses in the mid and small-cap segments will grow faster to take advantage of opportunities coming by in the next few quarters. I believe the index to look out for, should be the mid and small-cap ones – too much obsession with monitoring the Nifty may take our eye off the ball of these money-making opportunities.

Q: The RBI recently increased the Loan to value ratio to 90 per cent for home loans below Rs 30 lakh and Knight Frank India said Indian real estate witnessed private equity investments of $2,308 million in YTD 2020. Should one add real estate stocks to portfolio now and what is your pecking order?

Looking at stocks from a top-down approach may make one miss the woods for the trees at times. Emkay Capital Builder, for example, has held NESCO in its portfolio for the last few years which has been quite rewarding for its investors.

The last few years have seen a regulatory induced clean-up which has enabled genuine players to step forward across all sectors of real estate – be it commercial, premium housing, affordable housing, and the like. Although a full-fledged recovery may still be some time away, it will be a good idea to pick up real estate stocks backed by good management.

Another good idea would be to own real estate shadow plays like HDFC, APL Apollo Tubes etc which can investors ride real estate rallies with much lesser risk.

Having said that, I believe that it may not be a bad idea to invest in your dream house right now. Interest rates, good quality projects and prices – all are coming together in an incredibly attractive manner.

Q: Do you think September quarter earnings will set the direction for further earnings growth?

I think the commentary has turned positive over the last few weeks across a lot of sectors. Demand is coming back not just from rural India but also from urban India due to the onset of the festive season. The September quarter earnings should reflect just that.

Indian companies have become leaner operationally as well as leverage wise which should reflect in numbers. COVID-19 has accelerated the process of shedding excess fat, both on P&L as well as balance sheet, which should reflect not only in numbers for September quarter earnings but for longer-term earnings too.

Q: Nirmala Sitharaman has been saying the government is open to further stimulus, assessing the impact of the COVID-19 pandemic on FY21. Do you expect more stimulus measures despite fiscal constraints or do you think the government will wait for vaccine/complete normalcy in the economy?

The Government has shown an intent to do whatever it takes to balance both Lives and Livelihood. An event like COVID-19 has had no precedence, and hence despite some setbacks, the government is clearly on to a calibrated growth path. The expectation then obviously would be that there would be some more stimulus measures in the offing, as waiting for a vaccine is not a “controllable” the government has the luxury of…

Unlike, the governments globally, the Indian government hasn’t used all of its firepowers at once. By doing it on a piecemeal basis, it may be the right way to go on three counts (1) the supply side hasn’t still caught up with the demand for various reasons like shortage of labour and weak supply chain for raw materials (2) using everything at one go would leave little gunpowder with you in case more stimulus is needed and (3) there are fiscal constraints too.

The RBI has also pitched in enough by cutting policy rates by 155bp which has transpired into lower system-wide lending rates. Enough and more liquidity has been provided to industries as well as consumers. We like this approach of easing supply-side first and then giving a strong push to demand by both, the government as well as the RBI.

Q: The pace of redemption pressure in MF reduced significantly in September. Do you expect net MF inflow in equity-oriented schemes during October or will the trend of last three months remain in October too?

Typically, shorter time frames don’t define longer trends. Whether it is Mutual Funds or Investment managers, the narrative to the investor is very clear and hence it will continue to attract longer-term money.

However, one has to remember that the investor is becoming smarter with so much information and advice to choose from. He is going to migrate to a more attractive investment avenue for him if his current investments are not keeping pace with his goals.

Having said that the mutual AUMs to bank deposit ratio in the USA is at 100 per cent whereas, in India, it is just 21 per cent. The world average is 55 per cent. The aspiring Indian young population needs professional fund managers to manage their income and assets. So, portfolio management services, as well as mutual funds, will have to stand tall and be counted to take advantage of this.