Dalal Street Voice: Keep an investment horizon of 5-10 years for generating significant corpus: Reshma Banda of Bajaj Allianz Life
An investment duration of a 5-10 year time horizon is ideal for systematic investing and generating a significant corpus that would enable the individual to meet their life goals, Reshma Banda, Head – Equity & Executive Vice President, Investments, Bajaj Allianz Life – said in an interview with Zeebiz’s Kshitij Anand
An investment duration of a 5-10 year time horizon is ideal for systematic investing and generating a significant corpus that would enable the individual to meet their life goals, Reshma Banda, Head – Equity & Executive Vice President, Investments, Bajaj Allianz Life – said in an interview with Zeebiz’s Kshitij Anand. Edited excerpts:
Q) If someone has a long-term view of say 5-10 years – how should one approach the markets?
A) A systematic approach to investments is the preferred investment strategy and we would suggest that this should be followed by all investors/policyholders.
With the market scaling fresh new highs over the last few weeks, the potential risk of taking exposure to the capital markets at peak levels would be a concern in the case of a lump sum amount for all investors.
But, in the case of a regular and systematic investment where a fixed amount is invested on a regular monthly/quarterly basis, an investor would benefit from having entry to the markets at numerous levels.
This method would facilitate a retail investor in navigating the troughs and peaks of the market with a relatively lower risk.
An investment duration of a 5-10 year time horizon is ideal for systematic investing and generating a significant corpus that would enable the individual to meet their life goals.
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Q) Which sectors are likely to lead the next leg of the rally and why?
A) We are optimistic on sectors like Infrastructure & Capex plays, commodities, and select banks. With economic activity gradually reverting to pre-COVID levels and a government push towards manufacturing in select sectors (including the PLI scheme), we believe that the recovery in the domestic economy would be broad-based.
Commodities are trading at multi-year highs and this is resulting in a steep increase in profitability of metal and other commodity companies.
Corporates in these sectors would utilize the strong earnings to deleverage their balance sheets and thereby address a key investor concern.
Large Private sector banks would lead the credit growth in the economic recovery coupled with the hypothesis of credit cost getting normalized in the latter half of the year. With improvement in the macro environment scenario and compelling valuations of private banks, we remain positive in this segment.
We are cautious on the Pharmaceutical sector as we see a resurgence of regulatory activity that could impede the profitability prospects of the regulated market opportunities.
Q) You have seen many bull and bear cycles in your career. Do you think this bull market is different and what is the kind of strategy you are following for your fund?
A) Unlike the previous bull markets which were driven by a narrow segment of the market (TMT in 1999-2000 & Infra in 2007-08) the current bull market is much more broad-based with many sectors participating in the same.
The current cycle is also driven by a strong liquidity undercurrent unlike when the markets were largely driven by foreign money in the current rally, domestic participation has also been reasonably strong.
Previous cycles were driven by earnings growth assumptions that turned out to be unrealistic in hindsight (1999-2000) or by excessive leveraging (2007-08).
On both these aspects, the current cycle appears to be much more measured and hence the sustainability of the rally is more likely.
Q) Should one tweak the asset construction of their portfolio especially after 27-28% rally seen in benchmark indices? Should one go underweight on equity and increase weightage in debt?
A) Though the equity markets have delivered strong YTD returns the underlying drivers of strong liquidity and economic revival continue to hold.
On the other hand, GSEC yields have been inching up gradually, driven by elevated inflation and in anticipation of an eventual end to the current accommodative monetary policy stance.
Any news flow or timelines on global and domestic withdrawal of liquidity is a key risk that could create volatility in the markets.
Depending on the risk profile of an individual and investment time horizon, the asset allocation across debt and equity can be determined at the current juncture.
Q) What are your views on broader markets? Small & midcaps outperformed benchmark indices by a wide margin. How do they stack up valuation wise compared to historical averages?
A) Small & midcaps have been outperforming the broader markets which have been a function of a broad-based recovery in the economy after the decline in GDP in FY21.
These stocks also witnessed a sharp fall at the outbreak of the pandemic with the lack of visibility and the impact of the pandemic across the globe. If one measures the performance of mid and small cap stocks from pre COVID levels the performance has largely been comparable with the broader markets.
With the markets scaling new highs, and the valuation premium of midcaps to large caps widening, we would be more positive on large caps as compared to smaller entities.
Q) How to pick stocks when everything seems to be looking expensive compared to historical averages?
A) We follow the approach of investing fundamentally in corporates having managements adhering to strong principles of corporate governance available at attractive valuations.
Our philosophy of buying businesses with steady growth and reasonable profitability remains unchanged.
Q) What do you make of the price action on D-Street – Sensex touched 60,000 while the Nifty50 inched closer towards 18000 levels. Time to be cautious or just ride the momentum?
A) Equity market’s recovery from COVID lows has been spectacular with the large cap indices up >120% and mid/small cap doing even better. The rally has been driven by strong liquidity due to the easy-money policies adopted by Central banks across the world.
Another factor propelling the markets is the strong earnings growth witnessed in FY21 and the trend is likely to continue in FY22/23 as well. Overall, Nifty earnings are expected to grow by 84% (22.6% CAGR) during the FY20-23 period.
With the earnings growth outlook being this strong, we believe that any correction should be viewed as an attractive opportunity to take additional exposure.
Q) One good thing which has come out in the last 12-15 months is the fact that reliance on foreign investors to push the market higher has come down. The Indian market has remained resilient which is a good thing. What are your views?
A) Equity Investments by Indian households have traditionally been low. Over the past 1.5 years, the participation of retail investors has been increasing through the direct route and through various investment vehicles.
Equities have proven to be the ideal asset class for Wealth creation in the past and a reasonable equity allocation by retail investors will go a long way in helping them achieve their life goals.
This trend also helps us as a country to reduce our dependence on foreign flows and enables them to participate in the India Growth Story.
Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.
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