Deepak Ramaraju, Senior Fund Manager at Shriram AMC, shares insights on the market, discussing both global and domestic conditions, and focusing on factors like inflation and geopolitical tensions. He predicts a market rebound post-elections driven by corporate earnings, particularly in the SMID space. Additionally, he recommends Equity Linked Savings Schemes (ELSS) as a tax-saving option offering long-term capital appreciation. Despite new tax regulations, ELSS remains appealing to investors due to its strong risk-adjusted returns, with about one-third of funds surpassing benchmarks.
Edited Excerpts of an interview with Livemint
1) How do you assess the current domestic and global market conditions, and what factors are you closely monitoring?
Inflation and geopolitical tension are the main factors impacting the global economy at present. US inflation, still hovering above the 3% level is proving to be stickier and more persistent, hence rates are likely to remain higher for the time being and any cut is unlikely in 1HCY24. To add to the concerns, the Red Sea attack by the Houthis added to higher freight rates across the globe. With Japan ending the negative interest rate regime, US Treasuries could be impacted to some extent as the Japanese hold a significant amount of US Treasuries.
Indian market is witnessing a healthy correction, which was expected especially in the SMID space. This correction is going to be short-lived and markets are expected to continue to rise post-election and with the support of corporate earnings.
The market has already factored in a BJP-led majority government for next term and any disappointment could be majorly negative. Meanwhile, the current spell of El Nino is likely to end by May thereby raising the expectation of normal rainfall this year. This augurs well for the agrarian rural economy as well as keeps inflation under check.
2) What are your views on the Indian equity market’s valuation levels, and where do you see potential opportunities?
There is no doubt that the valuation looks expensive, especially in the SMID space. The ongoing correction is welcome and should be considered as a buying opportunity in a staggered manner. Amidst the backdrop of slower growth in major economies, India is in a sweet spot. With a modest current account deficit, fiscal prudence by the government, focus on infrastructure, and import substitution playing a key theme, India can sustain 6% to 7% annual GDP growth. In line with the government’s focus, opportunities remain in semiconductors, renewable energy, defence, infrastructure, and railways.
3) Insights on the role of tax-saving funds in an investor’s overall wealth creation strategy
Equity Linked Savings Scheme (ELSS) have the dual advantage of tax savings as well as long-term capital appreciation. Compared to the other options available under section 80C ELSS schemes have given superior inflation-adjusted returns.
The lock-in period of 3 years (which is one of the lowest compared to other tax-saving instruments) helps in countering temporary instabilities in the equity market. AUM of ELSS funds stood at ₹2,12,854 crore as of February 2024, a 20% CAGR over the last 3 years and this indicates the growing popularity of ELSS Tax Saving instruments.
4) How do you manage the risks associated with equity investments in an ELSS fund, given the market volatility?
Appropriate hedging strategies are in place to tide over any market volatility. Strict adherence to valuation is also adopted to reduce volatility. Also, we use the proprietary Quantamental model where in low volatility, valuation are key factors that help to navigate through market corrections
5) How has the performance of ELSS funds fared in comparison to their respective benchmarks over the past three and five-year periods?
Around one-third of the funds were able to beat the benchmark (NSE 500). The category has delivered approximately 37% in the last 1 year and 16% CAGR in the last 5 years.
6) To what extent has the introduction of the new tax regime impacted the demand and relevance of tax-saving mutual funds?
The new tax regime is yet to have any meaningful impact on the demand for ELSS schemes. This is because the new tax regime is optional for individuals and this will be more optimal for individuals who are in a lesser tax regime. Also, the superior risk-adjusted return of ELSS schemes compared to other tax saving instruments makes it attractive to tax savers.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 23 Mar 2024, 07:41 AM IST