S. Naren, ED & CIO, ICICI Prudential AMC said that at a time when equity markets have been steadily moving higher over the past two years, it has been generally observed that investors tend to forget the basics and make mistakes, which could prove to be detrimental to their financial health.

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Naren has rich experience of 3 decades in almost all spectrum of the financial services industry ranging from investment banking, fund management, equity research, and stockbroking operations.

In an interview with Zeebiz's Kshitij Anand, Naren said investors, who are likely to make money over the next year, will be those who are focused on asset allocation, invest in profitable companies, and invest across all asset classes with liquidity after considering risk and not ignoring it.

 

Edited excerpts:

Q) A strong close for the year 2021 for equity markets – what are your expectations for the year 2022?

A) We believe the year 2022 calls for a combination of active management and multi-asset strategies, which are likely to provide better investment outcomes.

The liquidity support provided by global central banks thus far had a prominent role in ensuring that equity markets remain resilient.

Now, with the US Fed and other central banks likely to embark on a tapering program, along with a potential rate hike, we expect market volatility to spike across global equity markets.

Investors who are likely to make money over the next year will be those who are focused on asset allocation, invest in profitable companies, and invest across all asset classes with liquidity after considering risk and not ignoring it.

Q) I recently read about your ‘ABCDEF’ investment philosophy. Help us decode for our readers.

A) At a time when equity markets have been steadily moving higher over the past two years, it has been generally observed that investors tend to forget the basics and make mistakes that could prove to be detrimental to their financial health.

To help investors not make these mistakes, we have the ABCDEF investment philosophy which is very easy to recall and understand.

A = Asset Allocation. Investors should adhere to asset allocation at all times. In a bull market, investors tend to forget about asset allocation.

B = Balanced Approach. Investors much have a balanced approach when investing. Keep away from pockets that have done well in the recent past.

C = Conservative. It helps to stay conservative in an up-trending market. Keep away from leverage.

D = Debt. Invest in debt as it is a capital protection tool. There are times in the market cycle when you invest to be cautious.

E = Enjoy. It is important to enjoy the money you make.

F = Fund of Funds (FoF). If investing confuses you, opt for an FoF and leave the decision to the fund manager.

Q) ICICI Prudential manages nearly Rs 5 lakh cr in AUM, second-highest among other AMCs. StockEdge data showed that AUM has grown from Rs 4 lakh cr to Rs 4.7 lakh cr in November. Which schemes are getting maximum traction?

A) Over the last year, we saw considerable traction in dynamically managed asset allocation schemes.

Within equity, there was considerable interest in the business cycle funds and our Flexi-cap NFO saw record collection. IT sector fund was another investor favourite.

Q) Some of the sectors that did well in 2021 were Power and metals which house some big PSU names as well. Do you think these sectors could continue to remain in focus in 2022 as well?

A) We have been very selective when it comes to power and metal. The outlook on the metal space is largely a result of the China policy on metals.

So, if there is a correction in the metal space owing to a China policy, it would be a good time to invest in some of the fundamentally sound names and vice versa.

When it comes to power, we believe this space has seen a significant rally, but we continue to remain bullish on our portfolio holding.

Q) How do you view new-age companies that hit D-Street in 2021. But, when growth looks more lucrative than value – how do you take your pick? Being a value investor – what percentage should one keep in the portfolio?

A) We are cautious of new-age companies as we do not know about their corporate governance history. Also, many of these companies are yet to be profitable. So, one has to be very careful when investing in new-age companies.

Being a value investor, I am comfortable with a value-oriented approach to investing. The beauty of value is that there will always be some areas in the market that will offer value.

For example, in the current time, there is a deep value in two-wheeler space, which three years back was not the case.

At the same time, my colleagues, who are growth-oriented, find IT attractive, which to me is no longer in the value territory. So, the market offers investment opportunities to both styles of investing.

Q) In terms of asset allocation – how do investors plan their investment journey in 2022?

A) Given the dynamic environment in global and domestic markets, we believe investors should focus on getting their asset allocation right and invest in multi-asset strategies.

Investors who are likely to make money over the next year will be those who invest in profitable companies and invest across all asset classes with liquidity after considering risk and not ignoring it.

The areas where investors could have a negative investment experience is opting for IPOs without earnings, high leverage through the derivatives segment, and ignoring asset allocation by investing in equities only (ignoring debt, gold, and cash). If your portfolio is overinvested in risky assets, then it appears a good time to cut that risk.

When it comes to fixed income, given that we are in an increasing interest rate environment, from a short-term perspective it is very likely that debt could be under pressure but from a medium-term view, debt could deliver a reasonable risk-adjusted return. Despite its muted return prospects in the near term, do not ignore debt as a part of one’s portfolio given its role in capital preservation.

Q) Equities delivered many multibaggers in 2021 – do you think 2022 will also be as thrilling for investors look to double wealth outsmarting other traditional asset classes?

A) We believe the period of easy money-making across asset classes is over. Rather than focusing on a single asset class, opt for strategies that allow an investor to take exposure to multiple asset classes.

In case if you are considering equity-related investment, opt for scheme categories that have the flexibility to invest across market capitalisation and themes.

Q) What is your take on value funds? This category had staged a smart recovery last year.

A) Value investing typically tends to do well at a time when market valuation is elevated. This is because value focuses on investing in sectors that are out of favour but have long-term value.

In value style, we have seen that investments made in 1999 did very well because at that point in time markets were largely focused on technology stocks.

Similar was the case in 2007 when infrastructure was in focus. So, if you are an investor willing to stay invested over long term, then you can consider opting for value funds to meet your long-term financial goals.

(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.)