For the first time, we are discussing war, we are discussing whether this is the end of globalization. Will there be a recession if interest rates rise? What will happen to the request? These factors have not been around for long and generally when these factors are in play the outlook for the future is about no returns, not low returns. How would you defend that?
We live in an interesting area. A high level of hope and optimism is returning on the back of the opening of the economy. Worldwide, as the economy opens up, tourism will pick up and growth will return and, naturally, the war has put a spur on how growth can be derailed.
But having said that, even if the Fed starts raising interest rates, there are concerns about inflation, but one good thing that has happened in recent years, especially from India’s perspective, is that when ‘they imposed the announcement of the lockdown, a series of measures were taken by both the central government and the Reserve Bank of India, taking into account the liquidity-oriented side and focusing on increasing the government spending to reduce growth.
This assault has given them a great understanding of how the economy can be revived and how demand can be brought back. Therefore, having seen this kind of scenario over the past couple of years and also having seen transparently how interest rate environments can be constructed in the country, my own belief even goes ahead even if worries arise, it should also be remembered that whatever concern for inflation is, today, driven more by supply-side constraints and not based on demand-side constraints. Strong demand is coming.
It’s all about supply and many manufacturers have stopped production because they don’t want to impose high costs on consumers on the goods they produce and therefore the decision makers who come together now. Even if there is a marginal rise in interest rates, it will not harm the economy, since as interest rates start to rise, the demand for money in terms of borrowing will increase .
Most companies have announced investments around the world probably as we start to see the price stabilizing, interest rates rise slightly and companies borrowing and then start focusing on the investment announcement very soon . We will likely be in a unique scenario where greater growth could be slightly below the rate of inflation.
Overall, we can talk about stagflation, but that is not necessarily going to derail the overall level of growth over the next few years. But from India’s point of view, we are very well placed for two reasons; Firstly, India is a country where there is a lot of political stability and secondly, we are also producers of raw materials and therefore we benefit from it. As the currency is one of our strengths, export-oriented companies will continue to benefit. Last but not least, the government continues to focus on reforms to ensure the economy returns to normal.
India’s positioning at the start of the year was the city’s best earnings story, but also the most expensive market. Don’t you think the valuation at this point maybe factors in FY25-FY26? We didn’t fall because the markets know FY23 can be a lackluster year but FY24-25 will be a good year?
If you look at the market over a number of years, it will go through cycles. They always start with something that has completely disappeared, everything looks gloomy and if the business is going to be very uncertain, they start from the period that can last about 10 to 12 months and can enter a phase of hope and optimism . This is actually the longest phase where profits take time to return and hope for optimism lingers.
Today the hope and optimism remains and some elements of growth are coming back, not as much as we expected, but then comes the growth phase and it goes into a completely optimistic phase. The growth phase is where BPA growth returns, but as the PE expansion occurs, the PE expansion of the hope and optimism phase occurs very significantly, then the profits come back a little later.
So we are in the growth phase and hopefully in the growth phase?
We are between growth and hope in the growth phase. From the perspective of policymaking initiative, the government or the RBI can take measures to support the economy, high liquidity, low interest rate regime and inflation as long as they are spread over a period of time and must not detract from reality. economic growth.
Policy reforms are expected to continue from the government’s perspective and with that, backed by a good monsoon, the rural economy is in all likelihood boosting growth and India is likely to stand out from most global economies. I am optimistic this year. Last year we saw nearly $20 billion in FII outflows. A similar trend may not necessarily exist in 2022 or 2023, given that China and Russia are going through their own difficult times. Hence, India would likely stand out differently for getting FII inflows and FDI inflows, so growth underpinned by future earnings growth might even be delayed. It is something completely denied.
While that’s the case, if we don’t look at the market more from a medium to long term perspective, rather than a one-year outlook, there will be a lot of challenges and that’s something for the next four years. five years, but we need to know what’s going on and that’s why we’re having this event and hopefully we can put it very clearly on the table.
Inflation is hurting us now. What should be done to ensure that pricing power does not diminish in an inflationary environment. You don’t lose your basic principle, what is the best asset allocation? How can you make your portfolio inflation proof or inflation proof?
Investing in stocks is supposed to be an investment to take care of your future purchasing power. This has been the case today if you look at it from the perspective of common investors or even HNIs or even those who traditionally focus more on investing in bank deposits. For him, whatever bank you go to, you get about 4.5-5% or 6% maximum and 6.5% if you are a senior.
None of the banks are going to raise interest rates even though the Reserve Bank of India is going to raise interest rates. There is so much liquidity, the demand for money is not there and so from an investor’s perspective, alternative investing becomes one of the main options to consider.
Secondly, as you rightly asked the question about inflation, fortunately the prices of goods in India are still not increasing except oil prices and diesel prices have increased. We still haven’t seen the general increase in prices. Let’s just assume a scenario when the price goes up. Ultimately, the price increase benefits some of the companies that produce those services or goods. Therefore, they earn more money. Over the past two years, metal companies have completely regained their profitability simply because with one or two years of good pricing power, they have managed to produce metal.
A similar situation will occur for all businesses, but from a consumer perspective, the best way to hedge against inflation is actually to view stocks as an asset class. That said, volatility could be present and therefore one must learn to surf the market more in the long term. In this case, the balanced advantage fund that has a good mix of equities and fixed income – we can call it the asset allocation fund – where the fund manager actually takes a call on where to go long on stocks or long on debt.
It’s also something that might be more useful from an investor perspective to go park your money and then look at it from a longer term perspective, a, to move pure equity between largecap funds and flexi cap and mid caps. A portfolio can be constructed by considering what is most important from an investor’s point of view. Come park in a balanced benefit fund type model, then spread your wings as you want to build your portfolio over a period of time.
Do you see that the new investor who came here is here to stay or is his temper checking out? March was a bad month and the slowdown started to have an impact in terms of flows?
From a distributors perspective, the current volatility has given them an edge in terms of getting more recognition and for a simple reason, last year, although we’re all very happy that many investors have come in the market, new investors are entering the market.
The point is, they all came in the bull market. They have seen a complete rise in the market, they have also seen a significant decline in the market. There has been huge participation in IPOs. Some IPOs have done well, while others have done very poorly.
This is where investors realized the importance of advice, the importance of going to ask someone what type of asset allocation we should have and therefore the number of requests that are received both at the AMC level at the distribution level, has only increased over the past few months, in particular due to the volatility that followed the stock market crash after the declaration of war between Russia and Ukraine.
This shook a lot of people, many of whom were early investors in the market. Making them aware of the importance of asset allocation has therefore become key and this is why the retail community is playing a bigger role. My own guess is that over the past few months, given that when the market has fallen, whether because of war concerns or not, money has still come in through SIPs and we have reached an all-time high. This basically means that most investors are investing in a falling market as well as an allocation model to build a long-term portfolio.
You have been saying for 15 years that the best is yet to come. When will he come?
That’s the beauty of our economy. It is beauty. As long as you continue to live in high hope and a reasonably good expectation that you are able to build, you can maintain your optimism.
In a few years, you will retire. You have to see the best. A Balasubramanian: India is always referred to as a developing economy and until we become an integral part of the developed economy globally, the hope and optimism for India will continue and we cannot consider a one-year market or a 10-year market. I still believe that we are probably in a 10-year bull market in India, given that we still have a long way to go.