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There are concerns around valuation. How comfortable are you with respect to valuation of the market? Also, what’s your outlook on equity markets in 2025?
Indian bellwether indices Nifty 50 TRI and Sensex TRI have corrected by 11% from all the recent highs and consequently Nifty 50 index is trading at 20x FY26 earnings. This is now within 1 standard deviation away from their historic 10-year average. Recent correction in large caps, largely due to FPI selling has resulted in large cap trading in a fair valuation zone. This scenario presents an opportunity for discerning stock pickers ready to go against the tide and reap benefits in medium to long term perspective. Indian equity market remains a stock-picker’s environment, with sector-specific growth opportunities and a focus on valuation discipline. We believe 2025 would come with its own challenges with India’s growth rate also expected to be around 6.5% as estimated by government agencies. However, we expect growth momentum to pick up entering 2025 on the back of pick up in government spendings, and resilient consumer sentiments.
ELSS is by far one of the best tax savings options for investors. However, many Indians are yet to invest in ELSS. How can the industry make ELSS popular among people?
ELSS could be an excellent investment option for tax-saving purposes for investors as it not only helps in saving taxes under Section 80C of the Income Tax Act, 1961 but also offers wealth creation opportunity over the long-term. An ELSS has a lock in period of 3 years and may help to save as much as Rs. 46,800 in taxes per annum if you are in the 30% Income Tax bracket and invest Rs. 1.5 lakh per annum. The regulator is taking efforts in making mutual funds penetrate to the masses by educating through number of financial literacy campaigns. As more and more people are made aware of the advantages of these funds, we are hopeful that the popularity of ELSS would gradually increase.
One of the most common beliefs among investors is that ELSS is just for tax saving and hence, they usually invest only up to Rs.1.50 lakh in these funds. How can MFDs persuade their clients to invest more?
ELSS is often viewed primarily as a tax-saving instrument but it should be seen as a powerful long-term investment tool that not only helps investors navigate market volatility (due to its lock in period) but also help generate potential returns. One factor that is often overlooked is that ELSS is an equity scheme which could help investors participate and take advantage of Indian equities. Distributors could inform clients to shift their perspective and not just treat it as an tax saving product but instead position it as a strategic product for goal based investing for long-term wealth creation and as a reliable tool for building financial security in the long run.
The majority of exposure of the total scheme corpus is in large cap space. What are the reasons for this?
As of the end of December 2024, we have allocated a significant portion of our corpus to large-cap stocks, as they tend to remain relatively stable in volatile market conditions, helping to secure the downside. However, this allocation is basis the current conditions. We will actively manage the fund and adjust its portfolio allocation based on market conditions, aiming to capitalize on market opportunities helping investors to potentially generate wealth.
Also, you have healthy exposure to small cap stocks. What’s the reason?
In the small-cap space, we have identified several stocks that are available at attractive valuations and have demonstrated strong growth potential, which is why they are part of our portfolio. However, our investment strategy is driven by a bottom-up approach. If we come across compelling opportunities in companies in other market cap, we are always open to exploring them and adding them to our portfolio.
The fund has exposure to 61 stocks. Why don’t you think that the fund is not over diversified?
Diversification isn't solely determined by the number of stocks in your portfolio. Instead, it depends on how well you're exposed to various sectors which have lower correlation. The portfolio should be positioned for the growth of the companies, the sectors represented in your holdings, and the overall quality of the investments. At ITI, we take top-down approach on sectors and take a bottom-up approach on stocks, carefully selecting each company in our portfolio. We believe this strategy ensures that our portfolio is optimally structured to generate reasonable potential returns and provide the best possible investment experience for our clients.
What’s the rationale for having over 10% exposure to sectors like financials and capital goods?
India's financial services and capital goods sectors are showing strong growth potential, presenting an attractive opportunity for long-term investments. The financial services sector is demonstrating resilience, with narrowing gaps between bank credit growth and deposit growth, easing margin pressures. The banking sector is also witnessing robust return ratios and improved capital adequacy levels, reducing the need for further capital infusions. Valuations of private banks remain appealing compared to the broader market, indicating stability and long-term growth prospects. In the capital goods sector, government infrastructure spending and initiatives like the Production Linked Incentive (PLI) scheme are driving growth. These investments are expected to boost manufacturing capabilities and strengthen India's industrial base, paving the way for further expansion in the capital goods market.
How do you position ITI Equity Tax Saver in the market as against other ELSS funds? What gives it a competitive edge?
For selecting companies in our portfolio, we follow a bottom-up stock selection approach, primarily focusing on stock selection and leveraging our expertise in identifying high-conviction opportunities. While we don't strictly adhere to any benchmark, we remain conscious of it, allowing us to navigate the market with agility. Our approach is particularly well-suited for managing ELSS funds, as not being restricted to market caps grants us the flexibility to invest in companies across market capitalisation.
Given that ELSS funds come with a mandatory lock-in period, we are able to take a longer-term view, investing in companies that may still be in the early stages of their recovery or growth journey. This contrasts with more traditional strategies bound by benchmarks, as it allows us to remain dynamic and flexible in our investment decisions. However, this flexibility carries some inherent risks, which we manage through a well-diversified portfolio, typically consisting of 60-70 stocks.