Macro factors including geopolitical tensions between Russia and Ukraine first and then China-Taiwan later have caused the market to move sideways. In an interview with MintGenie, Swarup Mohanty, Chief Executive Officer, Mirae Asset Investment Managers (India) explains how investors starting early in life benefit more as by staying invested, they can get the full benefit of compounding.
Edited Excerpts:
Q. What's your outlook for Indian markets for the rest of the year?
We see interest rates’ reaction to inflation trends continuing through rate hikes. The RBI’s response to inflation may not be as aggressive as in other parts of the world as we have seen a fall in global and local prices of commodities and crude which augurs well for our imported commodities basket. We are seeing the fourth consecutive year of adequate monsoon across the country which is good for inflation and the rural economy. There has been an improvement in various economic metrics like GST collection, freight movement, monthly auto sales, demand for electricity, demand, etc.
Foreign portfolio investors have been selling from India and have now started coming back while domestic Institutional Investors have been buying the dips. Overall, we, therefore, remain to remain constructive on equities and believe India is on the cusp of achieving robust growth over the next few years. Higher Capex provisioning and benefits from production-linked incentives (potentially can add 1.5 per cent to GDP over the next five years) should potentially revive overall capital expenditure across the sectors, boost employment as well as credit growth.
Q. Which sectors do you see will perform better from here on? Do you think a rally in auto, and financials is sustainable?
We find merit in holding positions in leading banking franchises, financial services, healthcare, autos and auto ancillaries, provided the latter are benefiting from the growth of electric vehicles or are agnostic to it. We are comfortable in the consumer discretionary space, specifically, we are positive about building materials, consumer goods, etc.
Overall, we would look at large caps providing stability and access to incremental market share as they are in a position to grow even within a difficult environment.
Q. What is Mirae’s view on the market's risk-reward ratio at the moment?
In the current environment, if someone is underweighted on their equity portion based on the asset allocation, they could move towards equal-weight (rebalance portfolio towards their original equity allocation). They may do so by starting additional SIPs (systematic investment plans). The existing SIPs should continue. Equity investments should be done with the money one is willing to keep aside for at least three-five years.
We have a positive view of the markets. We believe the Indian economy and corporates will withstand the current risks of oil prices rising again or if interest rates were to rise higher than market expectations. Investors who do not have a proper asset allocation should first revisit their portfolio and construct a proper model. Those who already have an asset allocation model should also revisit it because the falling market would have brought down their equity allocation to an extent.
Q. Is this a good time for a long-term investor to buy stocks?
If an investor is truly willing to be long-term, the best time to invest in Indian equities was yesterday. In case, we believe that India will be on a long-term trajectory of growth, holding Indian equities is the right way forward. However, staying invested is what determines a long-term investor. The early starter will benefit more as by staying invested, he or she can get the full benefit of compounding.
The timing is not critical if one is willing to be patient by being invested. Hence, rupee cost averaging is a superior strategy as it advocates investing timely but more importantly advocates staying invested.
All this should be within the right asset allocation which is driven by financial goals and the purpose of investing.
Q. Are there some pockets of buying left for long-term investors or do you think there will be better opportunities in the coming months?
Not sure about the coming months, but one sector which has been flying low on the radar has been the Power sector, it has seen a multi-year de-rating and ESG (environmental, social, governance) related concerns accentuated the situation. Economic recovery picks up and the sector largely starting to address the ESG concerns with the rise in demand, capacity utilization and new additions should improve the present situation. Government too has ambitious targets for green energy capacities. We feel there could be opportunities in this space, subject to the right valuations.
Q. Commodity prices have started cooling. Do you think it’s a meaningful impact on inflation in India in August and the coming months?
We believe this cooling was much needed and also indicates that demand is there but for the right price. We have seen this cooling of commodities inflation playing at macro levels of imported inflation which impacts us more especially due to crude prices. This helps in reducing the under-recovery at the retail crude prices which will help in stemming the losses to the fiscal and currency situation in India.
The prevailing monsoon coverage helps in moderating food inflation which is domestic and impacts the common people more. As inflation pressure recedes, the interest rate hike cycle can also be managed without derailing the growth expectations.
Q. What are the global factors you feel that can still derail the inflation and global growth story?
The supply chain disruption led inflation is the global factor which looms over global growth. The geopolitical frictions eventual play out cannot be predicted and so it continues to have an impact. Food and fuel inflation have impacted everyone and the coming winter will have an impact on energy demand. Covid-led disruptions continue in some parts of the world like China which disrupts global supply chains. However, there are other parts of the world which can still grow due to domestic factors. We can assume that the world will grow though the pace will be slower than what was expected earlier.
Q. Is the US recession still a credible threat to global and Indian markets?
We can look at this question from two points of view. First, the US is India’s largest export market. We exported USD 71.5 billion worth of goods and services last year to the US. So, an economic contraction may harm India too.
The US is a dominant economic entity and its contraction can have a ripple effect on all markets. Second, a recessionary US will also impact the global demand for goods, commodities and services. Already fear of recession has brought down commodity prices. Crude has come down from USD 134 to close to USD 100. It went up due to supply constraints and has come down on recession fears, not because of demand going up or down.
If recession fears can reduce commodity prices across the world, a net energy importer like India benefits also. Lower oil prices would also have a cascading effect on the current account deficit (CAD) as the import bills would ease, further resulting in a strengthening of the forex reserves and Indian rupee.
