India's long-term growth prospects remain strong, says MF CIO panel

At BS BFSI Summit 2023, Investment mavens say elections and global factors may lead to higher volatility in the short-term

The money managers in India are unanimous that though the equity market may see higher volatility in the near term due to the upcoming general elections, higher valuations, and global risks, the long-term view on India remains favourable.

“In India, we are seeing a steady recovery. From here on, the economy should be able to chug along pretty well. There are enough levers for the Indian economy to grow in the range of 6.5 per cent,” said Mahesh Patil, chief investment officer (CIO) at Aditya Birla Sun Life Mutual Fund.

Speaking at the Business Standard BFSI Summit, the country’s top investment mavens said rather than the elections, investors should focus on companies’ earnings growth and valuations.

 

“There is no direct correlation between market and elections over the long term, as data shows. What matters is the economic progress during the five-year period between elections,” said Ashish Gupta, CIO at Axis MF.

Sailesh Raj Bhan, CIO - Equity, Nippon India MF, said: “When it comes to predicting elections, the market has never really done well. Even if they get it right, the only thing that counts is the starting level of the market. If the starting point is low, everything is sorted. However, if the starting point is wrong, the market may disappoint even if the government delivers from a policy perspective," said.

Considering the near-term uncertainty on the political as well as global fronts, fund managers are of the view that investors should look at hybrid funds. They also stressed on the importance of not going overboard on equities and sticking to their planned asset allocation.

"One common point during every general election is volatility and that makes it easy for us to recommend hybrid funds during this period. Hybrid funds make sense from other perspectives as well like higher valuations," said Sankaran Naren, CIO at ICICI Prudential MF.

"It's time for investors to re-look at their portfolios and re-balance if required. Investors can look to reduce their equity exposure, if it has reached high levels. Especially since debt funds have turned attractive as yields have gone up,” said Rajeev Thakkar, CIO, PPFAS MF.

Stressing on the attractiveness of debt funds, Rajeev Radhakrishnan, CIO - Fixed Income at SBI MF, said debt funds were at a sweet spot right now. “From the Indian market perspective, fixed income is in a sweet spot. After a long time, investors can get positive real rates, whatever inflation estimates they take into account,” he said, adding that there are some concerns from the global as well as domestic perspective.

“The RBI policy stance is likely to stay in tightening mode or at least to be cautious for some more time. On the global front, the geo-political issues may have a spillover impact on our market,” Radhakrishnan said.

Though the fund managers are optimistic on the market front, they are seeing risks on the investor behaviour front. The concerns, they say, are largely coming from past performance-driven flows into mutual fund schemes. Smallcap and midcap funds have attracted the bulk of the flows in recent months, while largecap funds have seen continued outflows. Fund managers say since these flows have come on the back of strong past performance of these schemes, investors may have come in with high expectations.

“It is the short-term expectations of investors that worries me a lot. A lot of investors who have come in recently may be expecting 20-25 per cent compounding returns from small and midcap funds,” said Bhan.

“In the past 10 years, midcap and smallcap funds have delivered over 20 per cent annualised returns. Once an asset class has delivered such returns, it becomes extremely attractive for new investors. That’s a risk at this point of time,” said Naren.

Given the valuation dynamics, most fund managers have a large-cap skew. "The largest of the large companies in India are cheaper than the smallest of the small companies. This clearly signals where the value lies. Companies which are considered as growth stocks are now available at value-like prices. This tells us how dislocated the market is and where the opportunity for alpha is available,” said Bhan.

Sharing their views on sectors, fund managers said they were bullish on the financial, power, utilities, and pharma. Thakkar said the theme around investing in companies seen as benefiting from the domestic economic growth could be overcrowded.