investment strategy: It’s time to rebalance asset allocation and invest in a phased manner: Harsha Upadhyaya

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You have to rebalance the asset allocation according to how the profits were made on the stocks. Over the next two to three years earnings growth will be reasonably strong. The question is to what extent this is already up to date in terms of current assessments. I would say at least the immediate term is well discounted, says Harsha Upadhyaya, CIO-Equity, Kotak AMC.

This Diwali, you know that investors’ portfolios are sitting on very nice gains compared to last Diwali. Will it be safe to take profit because you also believe that valuations on average are above the 10-year average and most of the positivity is in price? Or isn’t the scenario so sparkling now to take money off the table?
We continue to have a neutral view of the market, which means rebalancing the asset allocation based on how profits have been made on stocks. For example, those who invested x percentage in the past year would have seen a significant increase in stocks across all offerings simply because stocks have significantly outperformed other asset classes over the past year.

Although from a medium to long term perspective, we still believe that the corporate earnings cycle is accelerating and that we are in its infancy, over the next two or three years there will be growth in earnings. reasonably strong profits to come. The question is to what extent this is already up to date in terms of current assessments. I would say that at least the immediate term is well discounted.

So to that extent, we should not extrapolate the type of returns we got last year to repeat next year. If the horizon is longer term, three to five years, and if one is willing to bear some volatility in the meantime, these are also the fundamental levels for continuing to invest in equities. But we tell investors not to make lump sum investments at these times and to take a phased and disciplined approach over a period of time.

How important would the Fed’s meeting this week be in terms of clues? How would the tapering start? How much would the market take off in terms of liquidity and is it possible that part of this decrease is already in the price?
Yes, the kind of comment that has come from the Fed in recent meetings is pretty clear. We will see it crumble very soon. It is also likely to extend until the middle of next calendar year. More or less, the markets know that it will likely start by the end of this year and continue for a while. US 10-year rates have now risen. How much of this is due to concerns about inflation, and how much is due to concerns about reducing lifespan, we really don’t know. But at least the fixed income market is already anticipating the withdrawal of easy liquidity situations from now on. However, the stock markets shrugged off all the nervousness and there have been a few minor corrections, but so far there has not been much concern about the likely downside.

But at these valuations, you have to be careful. As the tapering begins, there might be another wave of nervousness ahead. Over the past month, the IFIs have been on the sales side in India to take profits. Second, India continues to be a premium in all emerging and global markets in terms of valuations.

During CY2021, emerging markets remained largely stable, but as there is nervousness in the global market, FIIs and Indian investors may also sell more.

What do you think of the real estate space? Deepak Parekh recently said that the best time for real estate in many decades is starting.
We took a slightly different point of view. While we are bullish on real estate, we prefer the home improvement and construction industries over just playing with real estate companies. Yes, we have real estate companies in our portfolio, but to play all the upside in real estate, we are also betting on cement, various other materials needed for home renovation and construction such as tiles, ceramics, paints, pipes like electricity and soon.

So, depending on the fund’s investment mandate and the type of liquidity available in the different home improvement sub-segments, we built our positions but it is clear that after a gap of maybe 10 to 12 years, we see a slight increase in real estate. Inventory levels have gone down, the sales momentum has accelerated and one could argue that this is because of the consolidation of the real estate sector to the regulation of the RERA or because of some symptoms given by various state governments in terms of reducing stamp duties. registration. There has been better momentum and we also believe that the consolidation that has taken place over the past few years is going to help some of the established and important players.

What do you think is the most overlooked space at this time when the reward for risk is very attractive?
We still believe that cyclical sectors have more room in terms of possible revaluation. We are witnessing a return to economic dynamics. If this continues, we certainly see opportunities for improved earnings in some of the cyclical sectors, including financials. So finance, industry, many manufacturing areas, cement and construction are the pockets where there could be upside profits from current estimates and if that were to happen then there is a possibility of upgrading throughout the space.

However, when we look at information technology, consumer goods or even consumer durables, we can see that most of the upside is already captured in current valuations and is historically at high valuations. Also, relative to the market, the valuation levels are quite high and therefore the possibility of revaluing some of the sectors that have done so well in the last 12 months seems limited.

We think most of the cyclical pockets should focus on areas from here on out if you think the economic momentum is going to hold and strengthen from here on out.

Morgan Stanley’s Chetan Ahya says we’re in a 2003-2007 storyline. Do you agree?
This statement is partly true, but there are also some dissimilarities. One of these dissimilarities is clearly still in its infancy. Entry-level valuations were relatively much more attractive than they are today. The second difference is that at that time there was a large-scale investment cycle starting to unfold, but today when we look at the economy we see that although there is a requirement for large-scale investments, we really haven’t seen a large-cycle investment becoming visible. I would say it’s a little different from the 2003-2007 period.

But on the other hand, there is higher retail participation and higher institutional investment. There are a few more pluses and dissimilar points when you compare it to the old cycle.


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