In the first six months, the markets have been so volatile. We are still fighting with inflation and rate hikes are happening. Do you think that these factors will play a major role in the second half of 2022 as well?
Markets are forward looking creatures and they don’t go by what is happening as of now. They go by what is supposed to happen 6 or 12 months from now. So when it comes to high inflation, interest rate hikes by the Fed and supply chain disruption, the majority of this news has already been factored into the markets. In the US, the first half performance of 2022 has been the worst in the last approximately 42 years, which is a very big deal.
So from that particular perspective, I feel that a lot of negative news has been factored into the market and we should start seeing an upward journey. When exactly? No one can say for sure but yes I mean the growth will come and especially when it comes to growth stocks, growth sectors these are likely to start performing well.
How are you approaching the market at this point in time? How do you pick winners for investment and which strategies one should follow to protect the portfolio amid volatile markets?
I am a diversified investor and I invest across different asset classes and within equities, across different sectors. I invest both in India and the US. There would be very few sectors like secular winners, everyone is winning in this sector vis-à-vis some sectors that are consistent losers. So it is very hard to pick sectors per se but if you are picking good companies within each of the sectors then I think you will have an easier time ahead.
If someone is planning to put let us say Rs 10 lakh right now, which is the ideal medium according to you and what should be the ideal asset allocation strategy?
It depends on what type of an investor you are. For example, if you are 25 years old vis-à-vis if you are 50 years old, then your investing strategy or investment goals will be very different. For example, if you are 20-25 years old, then taking positions in slightly riskier assets might make a lot more sense. For example, you can buy tech stocks and explore other asset classes but if you are a slightly more defensive investor, you are depending on your stock market/mutual fund investment or your investment income in general to sustain then taking some positions in bonds would make a lot of sense from that perspective so really depends I mean what is your age, background, demography, etc, etc.
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But for a balanced investor, I would say that having a split between 70% equity and 30% bonds is recommended. Within equities, stay diversified across different nations and sectors. It’s a great time to invest in India as it is one of the very few emerging economies and has the potential to grow sustainably over a long period of time. So if you are taking a five to ten years view of the market, there is a very good chance that there will be a good bull run in India from which we as investors can benefit. So just pick good businesses.
What are the chances of recession in the US and how do you see that and what kind of impact can we have on the equity markets?
Recession in economic terms means a slowdown in growth for at least two quarters. It is already there, they will officially announce it next month. The stock markets are forward looking creatures and the markets have already factored in the recession. Everyone is predicting what is going to happen in the stock markets 6 to 12 months from now and my viewpoint is optimistic. If you buy things at a discount, that is when you make the most money and right now very high negative sentiments prevail, so it might be a good time to start constructing your portfolio.
What about the foreign investors? They have been on a selling spree and fortunately the DIIs have certainly acted as shock absorbers but what is pushing FIIs away from the markets and what is your outlook on this relentless FII selling pressure?
I don’t think FIIs have sold that much. If you actually analyse the data, you will see that approximately 92% of their portfolio is still invested in the Indian market and they have withdrawn 7% to 8% of their portfolio which is completely okay. This is called derisking of the portfolio. Whenever there is any kind of looming recession that is going to happen, the growth economy suffers the most. India is a growth economy therefore 8% of FII money has been pulled out of it right so it is not the end of the world. It is like you are saying that I used to have like Rs 100 in the stock market now I have withdrawn Rs 8 so stock markets should crash because retail investors have withdrawn 8% of their money. It is not going to work that way. Whenever growth returns to the world, whenever the government starts printing more money and starts exploring expansionary policies, growth will return to the market and so would FIIs.
Your advice for all the new and young investors? Any mistakes that they should avoid especially at this point in time?
Stay diversified and do business analysis. If you have one lakh rupees, invest in at least 15-20 stocks. That is the simple message that I will give. Also, staying diversified is very important especially when the entire market is moving as per the macros.
What are your thoughts on all the new age internet companies?
If you study the dotcom crash, the majority of the internet companies went away but there were companies like Amazon which lost approximately 90-95% of their value and now they stand one of the biggest firms on earth. So the point is that new age internet companies or a set of companies, again majority of them will go away but whichever survives they are going to actually become major catalysts in the market and might become one of India’s biggest companies going in the future. There is a reason why even conventional companies are moving towards tech, so we need to appreciate the viewpoint that tech is risky but at the same time there are opportunities associated with it. It indicates a change and change is always very difficult for people and of course there will be a lot of volatility around the way that some of the good internet companies will lose their stock market price by even like 90-95% but yes, the story of Amazon can repeat, there is absolutely no reason why it should not.
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