Listen to this article
2023 is coming to an end soon, what are the key lessons that the year taught?
With the backdrop of an aggressive rate hiking cycle and valuations near long term average, investors were expecting weak broader markets. Our research suggested a broad-based earnings revival which indicated opportunities with reasonable upside potential across multiple sectors.
The key lesson was to focus on bottom-up stock research and follow the process irrespective of the market noise. Contrary to the popular expectation of a market correction, Sensex delivered a total return of 15.8% (data as of 13-Dec-2023) in 2023 and this was in line with our expectations.
What are the key trends that MFDs/RIAs should watch out for in 2024?
- Demand in mass market and rural segments remain muted due to inflationary pressures. With a potential moderation in inflation, a recovery in the mass market segment could strengthen the ongoing economic uptick.
- Most of the recent capex were majorly driven by government sector. Private capex is showing early signs of revival. Buoyant demand environment along with a pickup in utilization could strengthen the private capex trajectory, granting further legs to the current economic recovery.
- As global inflation and interest rates moderate, India’s stable policy environment and resilient economy could attract meaningful foreign flows.
What are the three must-have business skills for MFDs/RIAs in the coming year? And why?
- Easy flows amid low interest rate environment during the past decade led to poor recognition of risk in equity. Funds with superior risk management framework were under appreciated in the past decade. It is critical to understand the characteristics and processes associated with a fund to ensure durability of performance across market cycles. So key skill is to decipher the performance across cycles and then see the suitability of the fund for investors.
- It is important to evaluate the frameworks used by a fund in buying and selling underlying stocks.
- Flows into mid and small cap category have been disproportionately high in the recent times. Some funds in smaller market cap categories could have outgrown their designed capacity creating additional risks beyond equity market related risks. Thus understanding investor’s risk profile and fund related risks can help in building an optimal portfolio.
