Goal-based planning is essential for successful investing, which involves careful consideration of asset allocation and fund selection, says G Pradeepkumar, Chief Executive Officer, Union Mutual Fund.
In an interview with MintGenie, Pradeepkumar said that an important factor contributing to our economic growth is private consumption.
Edited Excerpts:
Q. What is your view on the current market scenario? How do you think the markets would behave from here?
As a fund house, we follow a fair value approach to investments. As of the time of this interview, as per our internal research, the Nifty is trading at a marginal premium to its fair value. From our perspective, the long-term prospects for the Indian market are positive. While there may be some short-term volatility, we find the risk-reward trade-off favourable for investors with an investment horizon of five years or more.
Q. Data indicate how midcap stocks and funds have outperformed their large-cap and small-cap peers. Considering how bank stocks are taking a beating after the temporary bull run, should investors rejig their investments in favour of mid-cap funds?
While midcaps and small caps may have corrected in the past, they have seen a recent uptick. As of the day of writing this response, from a valuation perspective, we are neutral across large, mid, and small-cap segments in our diversified funds. While we don't recommend any reallocation in favour of midcaps at this stage, we do suggest that investors should adhere to the allocation suggested by their advisors.
Q. Gold and silver prices are going up due to macroeconomic factors. Does it call for a changed allocation strategy in favour of increased gold and silver investments compared to stocks and equity mutual funds?
The prices of gold and silver are largely influenced by macroeconomic factors, which can be difficult for investors in India to comprehend fully. Therefore, we advise a cautious approach and suggest a modest allocation to gold and silver as part of a diversified portfolio. It's important for investors to understand the global dynamics of commodity price movements before making any active investment calls. While a general allocation of 5-15 per cent may be appropriate for most investors, individual circumstances can vary and we highly recommend consulting with an advisor for personalized guidance.
Q. Which sector do you think you would initiate the bull run in the stock market post this lull?
It is difficult to foresee which sector would trigger a rally. However, we hold a cautiously optimistic view of the Indian equity markets in the medium to long term. India is likely to be the 17th fastest-growing economy worldwide, and for this growth to continue, we need a robust financial system. With stronger balance sheets and adequate capitalization, we believe that the leading banking and non-banking financial institutions are well-positioned to fund India's economic growth and profit from it too.
Another important factor contributing to our economic growth is private consumption. Our nominal GDP is expected to grow at 10-11 per cent, while our population is growing by approximately a percentage. As a result, we can anticipate an average Indian's per capita income to increase by 9-10 per cent each year. This rise in disposable income is likely to lead to higher spending on consumer-discretionary items, such as branded apparel, consumer electronics, quick service restaurants, etc.
Finally, the government's goal to make the country a manufacturing hub has been supported by important policy actions, including tax rate reductions, the introduction of Production Linked Incentives (PLIs) schemes, and emphasizing capital expenditure in budgets. We are optimistic that India will become more influential in the global supply chain, which is expected to result in a positive business outlook for industrial consumables, industrial products, and capital goods in the next five years.
Q. Do you think some sector stocks are still overvalued despite such a prolonged correction?
We primarily adopt a bottom-up stock selection approach rather than a top-down sectorial view. However, based on our current portfolio positioning, we are underweight materials and utilities sectors.
Q. How do you advise investors to create wealth and achieve their financial goals in the long run?
Goal-based planning is essential for successful investing, which involves careful consideration of asset allocation and fund selection. This is a serious exercise and we encourage investors to seek guidance from their advisors to build wealth and effectively accomplish their long-term objectives.
Q. Too many mutual fund houses are coming out with NFOs every week. What is your advice to investors looking forward to making new fund investments?
When choosing new fund offers (NFOs), investors should take an informed decision and if necessary, seek advice from their advisors before investing to be sure about the suitability of the product based on their investment horizon and risk appetite.
