Kanika Agarrwal, Co-founder, Upside AI said that our portfolios have been tending to infra-adjacent stocks since October. Cement, power, logistics are the kind of industries we are overweight in.

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Kanika has over 11 years of experience in finance and investing, and has worked with companies including Mayfield India, Credit Suisse, and EY.

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In an interview with Zeebiz's Kshitij Anand, Kanika said that the overall, budget continued to signal intent and direction for the government which was positive. Edited excerpts:

Q) What is your take on Budget 2022? Do you think it managed to address the growing needs of Asia’s third-largest economy?

A) This budget was great because it spoke the language of new India and looks to the future.

Plenty of buzzwords - drones, blockchain, crypto, green energy, startups. But it was more than just lip service as the FM’s speech relays the Government’s willingness to work with emerging sectors.

Moves like addressing crypto uncertainty, digital rupee, investment in green energy, committee for startups, limiting surcharge on LTCG are all positive not just for the policies themselves but also for the signal the government is giving us.

Focus on infrastructure, the LIC IPO, updating the IBC are continuing themes from last year. We hope to see more execution on these this year.

Overall, budget continued to signal intent and direction for the government which was positive. The only negative was the lack of tax cuts or relief for consumers and businesses who have suffered greatly in the last two years.

Q) Where do you see markets heading post budget – fresh record highs? Any specific target that you have for December 2022 and why?

A) Short-term outcomes are like coin tosses. For example, over the last 10 years, in the month post budget, the market has gone up 50% of the time. I can give you a prediction and have a 50% chance of being right!

Similarly, the end of the year is just a waypoint we use to measure market levels. I believe that in the next 2-3 years, markets will be higher than they are today. But, we do not try and forecast levels for any particular month.

The way to look at equity investing is as part of a larger asset allocation. Equity can be painful and volatile, but it is very important to stay invested with your allocation and ride the wave.

Q) The Budget 2022 bet big on infra which would also mean higher job creation as well as more loans. So, will that bring PSU banks under focus?

A) Our portfolios have been tending to infra-adjacent stocks since October. Cement, power, logistics are the kind of industries we are overweight in.

While we do not invest in PSUs, private sector banks are showing up in the portfolio after two years.

Q) What is Good, Bad, and Ugly on Budget from a stock market perspective?

A) The budget seemed largely neutral from a market perspective. Positive is that sunrise industries found more mention, like cleantech and EVs.

The intent to commit more to infra is a positive but consistent theme with the government. As always, it all comes down to execution.

One thing that was specifically left out of the budget talk was the LIC IPO. This will be a super interesting asset – however, given the size, there may be short-term liquidity issues for the markets.

Q) Budget 2022 was tabled that would address the needs of the economy for the next 25 years. Investors, who invest in 2022 should ideally have a time horizon of 10-20 years?

A) Even without the budget, the answer is yes. Your short-term investing needs are met by “safer” instruments like liquid funds and FDs.

The last two years notwithstanding, equity should always be seen as a long-term investment that needs time to compound.

Specifically, from where we stand today, I think we are at a unique moment in time. There is so much genuine innovation that can change the landscape of many industries.

Web3 and the power of blockchain, EVs, green energy – these are not incremental changes but can be revolutionary.

But how do you play these themes? At Berkshire Hathaway’s 2021 annual meeting, Buffett pointed out that in one of the hottest sectors in the 20th century was automobiles and there were over 2000 defunct companies.

In fact, after the 2008 meltdown, there were just three left; of which two had been rescued from bankruptcy by the US government. Hence, he went on to say – “...there was a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.”

Therefore, my advice for the next 20 years: stay invested and diversify.    

Q) What was in store of mutual fund investors post Budget 2022? Has anything materially changed?

A) I think over the last couple of years, retail has shown up as a mature investor class. After “mutual funds sahi hai,” the next quickest investor education has been “buy the dip.”

You can see this in the trends of SIPs continuing through market volatility, as well as the increasing participation of retail in trading activity.

There are now many innovative options available to retail outside of just active MFs. For example, Upside AI has partnered with smallcase to give retail investors a different type of exposure to the market.

Similarly, products like ETFs, international funds are other investment avenues that retail did not have access to a few years ago.  

Q) Post Budget we saw many thematic funds related to infra being launched by fund houses. Why fund managers are chasing infra as a theme? And, will infra be the theme of the next decade?

A) Supply of products is a function of demand. Every year there is a theme where a bunch of products are released – pharma, banks and now infra. Like with all themes, this will also follow a cycle of returns and if investors stay invested long enough, law of averages dictates that they should see at least index level returns.

For us at Upside AI, we believe the definition of “fundamentally good” companies constantly changes as market conditions evolve.

In 2020 it was chemicals, 2021 saw metals as a theme, and so on. We have built dynamic systems that can adapt to different market conditions and buy stocks that are not only fundamentally good but also in demand.

As I mentioned, we have been overweight infra-adjacent sectors since Oct 2021 so been bullish on this theme for the last six months.    

Q) Budget has a special focus on renewable and as well as green theme? How will green bonds help support the infrastructure theme? Will the role of the ESG theme become more prominent?

A) Green bonds are an attractive theme globally as investors look to park their money in projects that are environmentally conscious.
ESG is a very important theme for the next decade as businesses figure out how to grow responsibly. Even MFs that have launched ESG themes have done well over the last five years.

India is leading from the front when it comes to renewables. Proceeds from sovereign green bonds should help us grow cleanly, without the carbon intensity of growth that the West had seen in the previous decades.

Eventually, the hope is ESG considerations become mainstream enough where there is no need for ESG funds.

Q) What are your plans for 2022? What kind of products and themes are you bullish on?

A) We are very excited to bring our products to retail customers this year, where they can invest as little as Rs 25,000 using Upside’s research models.

As the first step, we have tied up with Smallcase to bring three very unique research products each focusing on different return-risk profiles.

Upside Titans focus on baskets of largecap stocks, Emerging Bluechip is our pure midcap product. Keeping the potential volatility of 2022 in mind, we have a balanced product called Shockproof to move between equity, debt, and gold to deal with this market volatility.

Similarly, we will soon announce an interesting product for US stocks.

We will continue to invest in these partnerships and bring unique baskets to retail investors this year.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)