“For equity allocation, the focus should be on the better-priced section of the market like BFSI, Autos, Healthcare,” says Sahil Kapoor, Head – Products & Market Strategist, DSP Mutual Fund.
In an interview with ETMarkets, Kapoor said, “Well for someone who has a higher tolerance level, according to me the ideal allocation would be to focus on multi-asset allocation funds,”. Edited excerpts:
As we step into FY25 – how do you see markets in the next financial year? Do you see a double-digit return?
Last year was one of the best for equities. India has seen a good amount of growth in earnings and margins which has ultimately resulted in price growth.However, going forward the market is expecting to have profit growth of 18% to 20% in FY25, which seems optimistic.
This also being an election year can have some periods of volatility, and SMIDs have seen a huge rally in 2023 which has built up a sign of concern in the minds of people.
We expect markets to face drawdowns and consolidation in upcoming quarters.
In terms of earnings – how do you see India Inc. faring in FY25? P/E multiple has expanded but there is a lot of catch-up which earnings have to do. Do you see earnings recovery in FY25, especially in the small & midcaps space?
The quality in the boom has played its part, evident in the premium ROE, leaving the market hanging in expensive territory.Following the rich earnings, the markets have rallied, but while the earnings have been taken advantage of and have now been exhausted, the euphoria in the market, however, has not stalled.
SMIDs had only taken the initial hit after a period of strong momentum, which could be the beginning of a ripple effect across the market.
However, as for SMIDs seeing an earnings recovery, it’s too soon to predict. It might be followed by a much-awaited market correction.
If someone with a high-risk profile plans to deploy Rs 10 lakh in FY25 – what would be the ideal sectoral allocation in his/her equity portfolio?
Entering the new financial year, people might be more optimistic about equities as they had a good last year. For someone with a higher tolerance level, the ideal strategy would be to focus on multi-asset allocation funds.They provide suitable cross-asset exposure. For equity allocation, the focus should be on the better-priced section of the market like BFSI, autos and healthcare.
India G-Sec bonds with longer duration also appear attractive for investors at this time.
What is your outlook on gold in the next FY?
The ongoing rise in gold prices is expected to continue through most of 2024. However, if oil prices continue to increase and positive trends in US data start to fade, the chances of Fed reducing interest rates may diminish.
This could potentially lead to some volatility. Gold is entering a bull market after years of consolidation. A sustained uptrend could be ahead of us.
What would be the ideal asset allocation looking at the domestic and global factors in the next financial year assuming someone is in the age bracket of 30-40 years?
Proper asset allocation is something which makes an ideal portfolio for the long term. Looking at the global and domestic data, in times like these it becomes a bit difficult to choose where to invest.
My ideal asset allocation would be to have 40% in domestic equities, 15% in global equities, 25% portfolio in debt and 20% portfolio in gold/silver.
FIIs took a back seat in FY24 – how do you see foreign investors positioning themselves in FY25? What is holding them back?
Foreign Debt investment has seen a massive inflow. While part of this influx can be attributed to the anticipatory flows for India’s inclusion in Bloomberg and JP Morgan Bond Indices, the stability of India’s foreign exchange rate plays a significant role.
However, the equity space has remained rather depressed in terms of foreign investment. In CY23, FPI flows for equities stood at USD 20.7Bn. After two consecutive years of outflows, the financial sector finally saw some inflows.
While India has gained traction around the large debt inflows, the depressed equity risk premium could be one of the reasons for subdued equity flows in calendar year 2024 so far.
Furthermore, there is still some time before the stretched valuations in equities are justified by an equally rich earnings growth.
Additionally, the prolonged lull in the volatility adds to a further illusion of comfort in the equities. India is doing RELATIVELY better than it’s EM counterparts.
However, when looked in isolation, as of now, it is unclear how aggressively can foreign investors to enter Indian equity space.
Will FY25 be another blockbuster year for IPOs? We saw many SME IPOs but not many mainboard IPOs hitting D-Street. Any specific reason for this mismatch?
In FY24 we saw the highest inflows for SMEs through IPOs which was approx. 5600 Crores, this is all-time high for the SME board, more than doubling from the previous Financial Year where it was approx. 2200 Crores. This clearly shows there is a big jump in companies raising money through SME Exchange.
As for the main board in FY24, companies raised approx. Rs 62,000 crore and the outlook for FY25 is on similar lines, estimating offerings worth up to Rs 70,000 crore.
The primary market trend in FY25 is likely to be driven by market sentiment. The reason for such a jump in the SME IPOs is that the interest cost of debt has increased because of increased rates and funding the company through equity is coming at a moderated cost, and all these new age companies need fundings to run their operations because of which it makes more sense to raise money through equity rather than through debt.
There is a lot of talk around valuations which have turned slightly expensive compared to peers. Is that something that is a sign of caution for investors in the new FY?
The stretched valuations accompanied by a rather low volatility across a prolonged period of time, topline and earnings growth, having taken the advantage of low raw material costs, has begun to fall.
However, the uptick in oil prices going forward might feed into the topline further falling and PAT margins taking a hit, and thus, the catch up in earnings growth to justify the stretched valuations is easily not until a few quarters.
While the momentum so far has been aided by earnings growth, the road further ahead, without looking back, is dependent on market sentiment.
Now when such low volatility phase is prolonged, there is a sense of complacency which sets in the market creating a false sense of security, because people often perceive low volatility with lower risk going forward, and thus making them comfortable with allocating capital to riskier, expensive assets, basically underestimating the potential downsides.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
