Edited Excerpts:
What are your expectations from the Interim Budget 2024?
Since this will be a vote on account, we do not expect major announcements in this budget. The government will likely maintain a path of policy continuity focusing on higher capex growth, especially given the recent electoral outcome. Even if it announces higher welfare spending, it is unlikely that the government will deviate significantly from the path of fiscal consolidation. Buoyant tax revenues and higher-than-expected dividends should help the government achieve its fiscal deficit target.
Which sectors should one focus on keeping in mind the upcoming elections and budget?
The focus on Make in India should provide a fillip to manufacturing and infrastructure. We do not expect any sharp deviations regarding the government’s focus on infra-creation. Similarly, the government’s housing interest subvention scheme would continue to benefit the housing, real estate, and home improvement sectors. State budgets will also be equally important, especially concerning likely higher allocation towards irrigation and food security, as such measures would help alleviate stress in some pockets of rural India.
What are the key lessons that you learned from 2023?
2023 has been a challenging year with market risk originating from global inflation shocks, geopolitical tensions in the Middle East, and uncertainty due to the elections in India. As a team, we view macro as a source of risk, from which we try to shield the portfolio’s relative performance rather than seek any opportunity to generate alpha. Through all these risks we continue to stay fully invested, with a bottom-up approach to investing in great businesses at attractive valuations while maintaining a balanced portfolio construction approach at all times.
As a business, 2023 has been a satisfactory year. At the group level, our performance-first culture has earned the confidence of investors worldwide, who have entrusted us with assets of ₹65,000 crores for investment in Indian equities.
What do you expect for Nifty in 2024?
We have always believed that in the very near term, the market is impossible to predict. Over the long term, markets worldwide have tended to deliver returns that are in line with nominal GDP growth rate plus dividend yield. India’s nominal GDP growth rate is expected to be low double digits going forward and similar would be our expectation for the market return in rupee terms.
What also makes the investment case for India unique is that it offers the highest alpha generation potential compared to any sizeable equity market worldwide. With very strong macroeconomics data and the upswing in corporate earnings, backed by expected liquidity from the return of foreign portfolio investors, India is expected to be a strong market in 2024.
What are the key risks to that upside?
As has always been, any sharp reversal in global markets is a key risk, as is uncertainty related to the evolving global geo-political situation. From a purely local perspective, the general election in 2024 is a key event. However, most investors will see recent state election outcomes positively in anticipation of reduced policy and political risks into 2024 and beyond.
What trends will be in focus in 2024?
We believe money is made in stock selection rather than betting on sectors or themes. Our funds’ exposures result from the team’s robust and rigorous bottom-up stock selection process. Having said that, India is benefitting from several secular tailwinds. A potential multi-decade growth opportunity is unfolding as per capita incomes rise, creating inflection points for various categories where India is at the lower end of the consumption curve.
Additionally, the country is experiencing rapid digitalisation of services, supported by increasing internet penetration and formalisation on the back of crucial ongoing structural reforms. The government is undertaking steps to indigenise manufacturing while upgrading the country’s infrastructure. Thus, while we do not tend to over-emphasise themes, from a bottom-up perspective, the team can find many alpha-generating opportunities within private sector financials, consumer discretionary, healthcare, and capex-oriented names, straddling many of the above aspects.
Will the upcoming year be kind to mid and small-cap stocks as 2023 was?
Given the strong returns that SMIDs have generated in 2023, largecaps as a segment have become relatively more attractive. It is also true that some pockets of mid and smallcaps may look overstretched as far as valuations are concerned vis-à-vis their large-cap counterparts; hence, we believe that investors should incrementally re-allocate their capital to largecaps. Historically, the team tends to find more opportunities in the small and mid-cap (SMID) segment, which is highly fertile for alpha generation due to greater inefficiencies in this segment. Regardless of sector or market cap, our portfolio companies tend to be leaders in their respective industries that are gaining market share on the back of superior management execution.
Foreign investor inflows are back. What can lead them away from India again?
Globally, we are in an environment characterised by unfavourable inflation dynamics, a slowing Chinese economy, persistently high geo-political risks, and higher climate costs. In contrast, India’s macroeconomic conditions are relatively healthier and are supportive of a broad-based recovery in corporate earnings. While flows from global institutional investors are subject to many conditions that are impossible to predict, the fundamental case for investing in India remains as compelling as ever.
However, what is important from India’s perspective is the structural uptrend in domestic flows – financialisation of household savings is a long-term trend. It is likely to be boosted by increasing per capita incomes, a young population, rising digital penetration, and easier access to financial products. Rising retail participation in equity markets has been a key feature of the Indian market in recent years, and domestic inflows have acted as a strong counter-balance to the volatile FII flows.
One piece of advice for new investors?
My key learning has been that top-down calls are fraught with risk without adding to returns. Volatility is a feature of the markets, and it is impossible to time the markets. Thus, from a prudent risk management perspective, it is crucial to stay fully invested at all times.
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Published: 15 Dec 2023, 12:26 PM IST