Sachin Trivedi, Head of Research (Equity) and Fund Manager, UTI AMC, believes India will perform better in the medium and long run. In an interview with MintGenie, he said investors should have balanced allocation to asset classes and use correction to increase allocation to equities.
Why are we underperforming our global peers? What are the top concerns in your views?
Nifty50 and BSE Sensex have underperformed global peers in the last three months but are still outperforming many peers on 12-month basis.
One of the reasons for the underperformance of India's equity market in the recent past is expensive valuations.
Historically, India has been commanding premium valuation due to its longer-term growth potential.
But this premium increased significantly post correction in many emerging markets last year, making India relatively expensive.
Additionally, earning performance of many Indian companies was weak in the last quarter, resulting in further cuts to the expected earnings.
The relative attractiveness of fixed-income products also makes equity less attractive.
When is the trend going to change? Are we going to see a longer bearish phase?
Post recent underperformance, valuations for the broader indices have inched closer to longer-term averages, and therefore market performance from hereon should be guided by earnings performance.
It is hard to call a bullish or bearing phase. And therefore, I keep my sight on fundamental factors.
Many large economies, including China, have issues surrounding high leverage and an ageing population.
On a relative scale, India is better placed on both matrices. India has improved the health of its banking system, and corporates have also improved their balance sheet.
Post pandemic, we are on a path to normalization. During the pandemic period, many people in lower-income bucket got affected.
With the normalization of economic activity, incomes in these affected categories should also improve, boosting consumption.
Falling inflation should also help. Therefore, in the medium and long run, India should perform better.
What sectors are you positive about? Can we still expect financials to outperform?
I like domestic-oriented stories where gradual improvement in income and falling input costs led by tapering inflation will improve sales and profitability.
My preferred investments are domestic two-wheelers, cement, select consumer durable, telecom, gas and power utilities.
Last year banks benefitted from healthy credit growth and rising interest rates (as assets get repriced faster than liability).
Even credit costs were under control. Some of these benefits may start to wane, but banks may offset the same through operating leverage.
I expect select private banks to continue to do well as growth and return ratios remain healthy and valuations are reasonable.
How worried are you about the global economic slowdown? Inflation is still elevated, and geopolitical tensions are high. Should one avoid equities and focus more on safe-haven assets?
Headwinds for global growth are mounting debt, rising inflation, and disruption in the supply chain.
Hikes in interest rates and quantitative tightening will further increase pressure, and many economies are expected to fall into recession.
This slowdown in growth will impact Indian companies' dependent on export. Conversely, commodities should cool off as global growth slows, benefiting Indian consumers.
So, we need to focus on domestic opportunities.
Equity is a better asset class for the long term. A rise in long-term interest rates should result in a higher discount rate and, therefore, lower company valuations.
And rising attractiveness of fixed-income products makes equity unattractive from a near-term perspective.
But past data suggests that equity as an asset class will do better than fixed-yielding assets in the long run, especially in an inflationary environment.
Therefore, investors should have balanced allocation to asset classes and use correction to increase allocation to the equities.
Disclaimer: The views and recommendations given in this interview are those of the expert. These do not represent the views of MintGenie.