“India fares better than most large economies in various macroeconomic indicators, including inflation, monetary policy, GDP growth, financial market stability etc. These factors will attract more FPI inflows into Indian equities,” Varadarajan, director at Asit C Mehta Investment Intermediates, said in an interview with ETMarkets. Edited excerpts:
Despite record highs in markets, India has underperformed its EM and DM peers on a YTD basis. Do you anticipate a trend reversal?
We believe that the upward trend in our equity markets will continue in the future. India is economically better positioned compared to most of the world’s major economies.
FPIs have been actively buying into India. Do you expect this trend to continue, and what factors will drive it?
Yes, we expect FPI buying to sustain. India fares better than most large economies in various macroeconomic indicators, including inflation, monetary policy, GDP growth, financial market stability, demographics, etc. These factors will attract more FPI inflows into Indian equities.
The BFSI sector, especially PSBs, have performed exceptionally well in the recent years. With a positive outlook for credit growth, do you see the premium between PSBs and private banks narrowing further?
There is indeed scope for the premium between PSBs and private banks to narrow further. The macroeconomic and rate cycle perspective indicates that the worst is behind us. Asset quality should not be a cause of concern, which is often the case for PSBs.
Speaking of the broader market, that segment has outperformed benchmarks significantly. Are there still any bottom-up opportunities in this space?
We believe the uptrend in the economic cycle has just begun. The current upswing is mainly driven by government capex and urban consumption, with other segments of the economy yet to catch up. As inflation softens and the festive season begins, there will be numerous bottom-up opportunities in midcap and smallcap space.
Your ACE Midcap strategy delivered benchmark-beating returns recently. Could you share its 1-year/3-year performance and the stock selection strategy?
ACE Midcap has outperformed the benchmark even on a 1 and 3-year basis, with TWRR returns of 36.6% and 29%, against 22.9% and 24.5% for the benchmark in the last 1 and 3 years, respectively. This outperformance is a result of our Scientific Investing Framework for portfolio selection.
What’s your mantra for generating alpha returns?
Our Scientific Investing Framework involves a two-step process. Firstly, we focus on risk management, and secondly, we aim to increase returns by investing in selective growth vectors to generate alpha over the long term.
Do you foresee any major downside risks for Indian markets in the rest of 2023?
For the remainder of 2023, there might be some short-term corrections due to profit booking after the recent rally. However, we do not anticipate any major or long-lasting downside. The only potential spoiler could be projections related to the outcome of the upcoming national election in early 2024.
Ahead of the general elections, what asset allocation would you recommend to investors?
The impact of general elections, even if negative, typically lasts for a short duration, as history has shown. We always recommend investors to have a minimum time frame of 3-5 years, if not more, while investing in equity. Therefore, these events do not impact our asset allocation strategy for investments.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
