Umesh Kumar Mehta, CIO, Samco Mutual Fund, believes that the benchmark indices could face better times compared to last year but we can't expect a repeat of 2020 or 2021 this year. In an interview with MintGenie, Mehta stated that while there is a good chance the benchmark indices touch their peaks in 2023, they will be paired with corrections. Investing in Mutual Funds could be a safe avenue to secure your future especially when times are volatile, he advised investors.
Do you believe the US recession is imminent? If yes, what impact will it have on the Indian markets?
Everything in this world is a game of probabilities and there could be only certain paths that lead to the unfolding of a particular event. Talking specifically about the US recession, yes the odds are pointing towards it, and so are various economists and institutions but how much of that will pan out in the months to come - only time will tell. However, the fact of the matter is if inflation is controlled, a solution is obtained to manage the debt levels and interest rate cycle turns, then the harm that is expected from this impending recession will surely be more manageable. India seems to be dissociated from the global economic challenges to an extent, and therefore despite the hardships in consumer spending in the dominant countries, India is expected to grow at over 6% GDP. With our liquidity, fiscal gap, inflation, etc. way under control, we cannot negate that India could actually stand out among the crowd in the next few months to years.
What strategy one should follow to stay protected in case of a recession?
The best way to remain protected in a recession would be to hold on to safe sturdy companies which exude excellence in terms of quality and survivorship. There is no doubt that quality rebounds once the tide has died down and this has happened time and again for decades. Investing in mutual funds could be a safe avenue to secure your future especially when times are volatile.
Overall, how do you see Nifty performing this year? Again a year of muted returns or will it be better?
After exceptional growth in 2020/2021, 2022 was indeed a muted one for the benchmark indices. However, this year could also be topsy turvy given that price is a factor of valuation and EPS growth whereby valuation expansion this year seems a bit much to expect, hence it all boils down to EPS growth. EPS growth could be decent but not the phenomenal jump we witnessed post Covid. Hence, overall the benchmark indices could face better times compared to the last year but we don’t expect a repeat of 2020 or 2021 this year.
Nifty is now just 3 percent away from its peak. Is there any chance of the benchmark touching its peak in 2023?
There is a good chance the benchmark indices touch their peak in 2023 but that will be paired with corrections given that we aren’t in the undervalued zone at the index level compared to our historical average. Hence, there is still scope for corrections.
What trends could contribute to that?
A rural pickup, increase in consumer spending, an infra boost by the government, more incentives for manufacturing in India which could boost exports, and continuation of oil and commodity prices in our favour are all key trends that can contribute to our indices touching newer highs.
Why do you think momentum strategy is important in the current scenario?
In the current volatile times when we are surrounded by a cloud of global uncertainty, there are still pockets of stocks that continue to make returns for an investor. And why does this happen? It is because of a term called information diffusion which could be one of the possible explanations for why momentum strategy is also important. For instance, given a listed company, it will be the promoter who knows when the business is going to do extremely well, then employees will know, then shareholders and next institutional investors which then flows down to the retail investors. This momentum in the stock generally lasts while the information flows from the promoter to the retail investor. Therefore momentum as a strategy works irrespective of the global scenario and challenges because you as an investor can capture any trend in the market while the information lasts.
Do you think this strategy will outperform other strategies in the future?
Momentum is a very powerful strategy and there is an analysis from empirical research to prove the same. MSCI research shows on a historical basis the momentum factor has been one of the strongest generators of excess returns. It is one of the most persistent factors to generate excess returns in all assets be it equity, commodity, forex in over 215+ years. In India, the 2 momentum indices from NSE beat the broader markets as well as their base indices by a huge margin. All these facts prove that momentum as a strategy has outperformed other strategies in the past and will continue to do so, if done appropriately with the right set of skills, even in the future.
One piece of advice for new investors.
Investors must not run after quick money just on the basis of random news or conversations with people. Momentum as a strategy is a skill that needs to be acquired and learned to fully benefit from it and make solid risk-adjusted returns in the future. Hence, it is best done under the guidance of an advisor, fund manager, or a mutual fund to enable more wins than losses on a net basis.
FPI flows are back! Do you see this trend continuing?
As India continues to be resilient compared to other global economies and there is a chance that the interest rate cycle might turn sooner rather than later, FPI flows could continue flowing into India and other emerging countries, especially in the coming months. However, the intensity of flows will vary depending on a lot of global factors and moving stones.