As an investor, you should follow your asset allocation. According to Kirtan Shah, Founder & CEO, Credence Wealth Advisors, investors must not go overboard on any asset class which does not suit their risk profile.
In an interview with MintGenie, Shah said that investors must not expect high returns in 2023.
Q. The market is in the green after a prolonged period. The geopolitical tensions have not lessened. What do you think changed for the investors in the Indian equity market?
Indian markets won’t do much in 2023. There are a lot of overhangs - global interest rates, rupee depreciation, and relative market valuation vs other emerging markets amongst other things. The only silver lining is the SVB and Signature Bank crises which might slow down the pace of the US rate hike & probably help the rupee a bit more. Investors should not expect high returns from 2023.
Q. Many thematic and actively managed funds have underperformed. Do you think it would serve better for investors to stick to passively managed funds?
While building a portfolio, you should have a mix of large, mid & small cap schemes. If you look at the last 10 years, you would see some years where the large, mid and small-cap sectors did well. It’s impossible to predict what will work in the coming three years. Also, we should try and add value, growth and momentum - all three styles of investing to the portfolio. Index investing is only growth investing. Also, the alpha generation in mid & small-cap funds has been far superior. So, for large-cap funds, you can have flexicap, while for mid & small allocation, choose an active fund.
Q. In wake of rising bank deposit rates, would you advise investors to shift to traditional investment schemes or debt fund instruments?
From a tactical perspective, I think 2023 will belong to fixed income. But as an investor, you should always follow your asset allocation. Don’t go overboard on any asset class which does not suit your risk profile. But all things kept constant, I think rates have topped out in India, if you are looking to do fixed-income investing, this is the right time to lock yourself in with higher rates. I would still prefer doing fixed income through mutual funds because of the tax advantage and the choice of funds like Target Maturity Funds which give me clarity on the returns I can make.
Q. How far do you foresee repo rate hikes by the RBI and its possible impact on the Indian equity market?
Maximum another 25 bps. Inflation in India is not a problem; the problem is the continued fluctuations in the value of the Rupee. If the US keeps increasing rates, the dollar keeps becoming stronger, thus, lending a larger impact on the Rupee, our imports and hence the country’s current account deficit. But thanks to the SVB fall, the US may slow down on their rate hikes. If that happens, suddenly the new-age stocks will start looking good.
Q. You advise mutual fund investments to your clients. Which factor do you mostly bet on – earnings, fund manager performance, value, dividend-paying stocks, portfolio turnover, etc.?
We look at 21 different parameters before adding a scheme to our recommended portfolio. The parameters are broadly around how much is the fund manager true to the objective of the scheme, how the fund has been able to manage drawdowns, risk-adjusted return parameters and sector allocations the fund is taking.
Q. The market corrected heavily due to inflated valuations. Do you think there is more room for valuations, henceforth?
The market is trading below 20X trailing for FY 23. Expecting EPS growth to be around 1000 in FY 24 and hence 16800 - 17000 may be decent to enter.
Q. Many investors have been betting on the banking and financial services sector. Which sector do you think would add value this year and add to the market’s growth?
I think 2023 will belong to the Information Technology (IT) sector. Not saying that the stocks are cheap but there can be a tactical move with the US doing better than India and the rate stabilizing. This is more of a tactical versus a fundamental call.