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What is your medium-term market outlook on equity funds? Could you take us through the key factors that could shape the markets in the near future?
The divergence in market performance between momentum and quality has been reversing rather swiftly on a relative basis. Many of these names today trade at attractive valuations in contrast to the rest of the market. This coupled with buoyancy on the economic front bodes well for investors looking to build a highly quality centric portfolio.
We continue to reiterate that companies where earnings trajectory has remained consistent are likely to return as winners of 2023.
Many MFDs are not comfortable with the current market valuation and hence, not recommending lumpsum in equity funds. What is your view on this? Should they continue to do STP or should they consider big lumpsum?
The last year has seen a time correction for the Indian equity markets. While India historically (and still) trades at a premium to global markets due to the unique position of our economy in the global paradigm, valuations today are more attractive than they were six months ago.
Also, one must note, the complexion of the Indian markets has changed dramatically. The stellar performance of momentum and beta stories has levelled the valuation gap between ‘value’ & ‘quality’. Today, I could argue, quality as a style is cheap and value as a style is expensive - quite the oxymoron!
For investors looking at fresh allocations, systematic investing solutions are better suited to allocate during volatile news heavy cycles like the one we are in currently. Lagged drops can be used to top up systematic plans with lump sums where the opportunity presents itself.
Over the last two years, your equity funds have not performed well across categories. How can MFDs explain this to their clients?
Fund performance is often cyclical by nature. To that end, we had an excellent run between 2017-2021 and have underperformed over the last 18-24 months. To explain our underperformance, we must understand a basic concept of valuation - i.e. the role of interest rates. For companies where growth and cash flows are typically back ended, a rising interest rate scenario is detrimental as the present value of these companies is affected. For companies where cash flows and growth are stable, the impact is lower.
Our style and investment philosophy of growth & quality has been tested several times in the past, be it 2013, 2016 & even today. However, we remain steadfast in our understanding, over meaningfully long periods of time - markets reward growth and good, clean businesses. And as we all believe, India is the fastest growing large economy in the world. The last two years have however been great learning periods for me and my fellow fund managers. Our understanding of ‘quality’ has evolved and that is reflected in our portfolios which are now ‘more granular’ and our universe has expanded to newer sectors and company business models. Our conviction, the names we hold remains unchanged.
We remain confident that our performance is due for a recovery and the first quarter of 2023 reflects this performance movement. We remain ever grateful to our partners & MFDs who have stood by us through these tough times and remain committed to providing a superior investment experience to all our investors.
Which fund categories should MFDs recommend their clients and why?
As a fund house we have always advocated for diversified investing strategies depending on the prevailing market conditions. The rationale to our thought process has been to give the investor the best experience throughout the investment cycle.
As MFDs, the role of allocating to unique themes and sectors is critical in the hunt for alpha and as part of the wider asset allocation. So, while the multicap funds form the core holdings, thematic and sectoral funds should be used to align portfolios to risk/reward goals.
