{"id":169318,"date":"2023-01-09T07:57:11","date_gmt":"2023-01-09T07:57:11","guid":{"rendered":"https:\/\/precoinnews.com\/?p=169318"},"modified":"2023-01-09T07:57:11","modified_gmt":"2023-01-09T07:57:11","slug":"expect-moderate-returns-from-markets-in-near-term","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/expect-moderate-returns-from-markets-in-near-term\/","title":{"rendered":"‘Expect moderate returns from markets in near term’"},"content":{"rendered":"
‘Given the worries about sluggish growth, rising interest rates and likely volatility, it’s quite logical to infer that the SIP route could be the preferred way of investing.’<\/strong><\/p>\n Sailesh Raj Bhan<\/strong>, deputy chief investment officer, equity, Nippon India Mutual Fund, in conversation with Sundar Sethuraman<\/strong>, says the financialisation of household savings into equities — either directly or through MFs, portfolio management services — has been unprecedented, lending strong support during global risk-off.<\/p>\n What were some of the unique things you experienced as a money manager last year?<\/strong><\/p>\n The resilience of Indian markets has been quite remarkable as markets scaled record-high levels amidst heightened global volatility.<\/p>\n The global risk-off phase led to sharp outflows from global and emerging market equities.<\/p>\n Indian markets also weathered one of the sharpest phases of selling by foreign investors<\/strong>.<\/p>\n They have rebound to scale fresh peaks, notwithstanding some weakness mid-year.<\/p>\n The financialisation of household savings into equities — directly or through vehicles like mutual funds, portfolio management services — has been unprecedented, lending strong support during global risk-off.<\/p>\n How are we placed in terms of valuation, earnings growth, and economic outlook? Do you see earnings expectations being met?<\/strong><\/p>\n As we enter 2023, we see an environment where both inflation and growth might be slowing.<\/p>\n India most likely will emerge again as the fastest-growing economy with perhaps limited macro volatility.<\/p>\n Yet, near-term global uncertainties are unlikely to wither soon and therefore, it would be wise to have moderate return expectations in the near term.<\/p>\n Earnings can remain challenging for some time as global growth weakens further and local economic conditions return to normal trends.<\/p>\n 2022 saw a moderation in equity flows and investor growth. Will moderation persist?<\/strong><\/p>\n Domestic investors have witnessed stellar equity returns over the past few years and it’s quite understandable that investors would have made some reallocation and altered their mode of participation.<\/p>\n For instance, over the past 11 months, it is estimated that SIP (systematic investment plan<\/em>) inflows increased by over 30 per cent with over 60 million live SIP accounts.<\/p>\n Given the worries about sluggish growth, rising interest rates and likely volatility, it’s quite logical to infer that the systematic route could be the preferred way of investing.<\/p>\n The broader market has underperformed, especially small-caps.<\/p>\n There are many interesting themes which could potentially benefit from domestic growth possibilities. Some key ones include:<\/p>\n Banks<\/strong>: India’s combined debt of corporates and households is very low, providing tremendous scope for leverage-driven domestic growth.<\/p>\n With a growing economy and rising credit penetration, bank credit may grow at a faster clip than nominal gross domestic product growth.<\/p>\n Formalisation and urbanisation<\/strong>: India’s urbanisation is quite low by global standards and is witnessing tremendous acceleration.<\/p>\n This represents various opportunities, including housing and premiumisation across consumer categories like retail and leisure.<\/p>\n Manufacturing<\/strong>: There have been various tax incentives, both in the form of direct taxes (corporate taxes, production-linked incentive benefits) and indirect taxes (goods and services tax) available to local manufacturers.<\/p>\n These, along with China Plus One (looking at supply alternatives to China), have provided the right enablers for potentially strong manufacturing growth in the years ahead.<\/p>\n While some segments have rerated, given the market rally, we believe longer-term opportunities remain.<\/p>\n Which sectors could do well in 2023 and why?<\/strong><\/p>\n Given domestic growth, fundamentals are much better placed than others.<\/p>\n India-centric themes like banking, non-lending financials, travel and tourism, and engineering appear interesting.<\/p>\n Some mean reversion may be possible across areas like health care, staples, and information technology.<\/p>\n How’s the risk\/reward for equity versus debt?<\/strong><\/p>\n I think it is important for all of us not to be distracted by the current narratives and focus instead on the risk\/return possibilities of each asset class, along with one’s risk appetite and time horizon while deciding on allocations.<\/p>\n Given the context of relatively higher interest rates and likely global growth slowdown, the risk\/reward for both asset classes appears to be evenly balanced.<\/p>\n A market correction can create potential opportunities for long-term equity investors.<\/p>\n Should one look at international exposure as markets like the US and China play catch-up?<\/strong><\/p>\n International exposure helps in diversification and lends better balance to the portfolio, given the lower correlation with domestic markets.<\/p>\n They also offer the opportunity to participate in geographies and themes that are on a different scale and stage of development.<\/p>\n From that perspective, developed markets and other fast-growing\/EM countries offer interesting possibilities.<\/p>\n International exposure should be viewed from the prism of diversification and the relative uniqueness they offer to portfolio allocation.<\/p>\n Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any schemes or any other financial products\/investment products to influence the opinion or behaviour of the investors\/recipients.<\/strong><\/p>\n Any use of the information\/any investment and investment-related decisions of the investors\/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.<\/strong><\/p>\n