‘We believe equities remain the best asset class for long-term wealth creation’: Chandresh Kumar Nigam

In the post-Covid world, where the world is awash with central bank liquidity, India has been getting a disproportionate share. As an opportunity, India continues to remain an attractive destination for global growth investors,” said Axis Mutual Fund MD and CEO Chandresh Kumar Nigam.

Axis Mutual Fund managing director and CEO Chandresh Kumar Nigam spoke to The Indian Express on the stock markets, foreign inflows and investor strategy.

 

Why are stock markets hitting new peaks at a time when the GDP is in contraction mode? Is the rally for real?

Stock markets are forward looking. They work on anticipation of the current and future economic outlook. The Covid impact on the economy was predicted in March and hence the markets corrected. As we stand today, the recovery theme has played out well as markets saw renewed interest for domestic equities from all market participants, including FPIs and portfolio investors. Earnings have backed investor expectations and we believe markets are poised to remain positive sans Covid. While we believe vaccines are on anvil and governments are chalking out large scale inoculation drives, the risk of a second wave in India persists.

Why are foreign investors pumping money (over Rs 1,60,000 crore in 2020) into Indian markets?

India has been a standout economy in the global context. Especially in the emerging market world, strong political stability and a robust recovery cycle has been a beacon for international investors. In the post-Covid world, where the world is awash with central bank liquidity, India has been getting a disproportionate share. As an opportunity, India continues to remain an attractive destination for global growth investors since they are increasingly comfortable with the structure of the economy, policy and regulatory framework. The government over the last five years has actively worked to make India more business friendly and this is now paying dividends.

Is the market, which is at a record high, safe for retail investors?

From a grim March to a euphoric November, equity markets have been on a rollercoaster ride — a reminder that equities are a volatile yet rewarding asset class. Retail investors have increasingly participated in equity markets through the mutual fund route and through direct stock investing as various investor awareness programmes by market participants have borne fruit over the years. The value of the Sensex and the Nifty is just a number. We have seen this time and time again. As India grows, financial markets will rise commensurately to reflect this growth.

We have many campaigns around why investing regularly is important. Timing the market rarely works and hence investing is a continuous process which when followed diligently has rewarded investors over the long term regardless of when they entered the market. SIP flows have been a testament to this understanding. For the better half of three years now, we have seen unwavering SIP flows.

One must remember that markets have been volatile during this phase. Investors who stick with their investment commitments have reaped the rewards of staying patient. We believe equities remain the best asset class for long-term wealth creation and should form some part of every investor’s portfolio.

MF equity schemes saw outflows of over Rs 12,000 crore in November. Why?

We must appreciate that domestic retail investors as well as large investors have been diligently investing large sums into equity markets over the last few years. The net negative numbers are not unwarranted given the current market conditions. It is not uncommon for equity investors to book profits especially after the roaring rally we have seen in the last nine months. I would not read too much into this fact. SIP flows continue to remain robust.

Short-term profit booking must not be construed as a negative as this is part and parcel of investor psychology.

What’s your assessment on the debt market? Have interest rates bottomed out?

Domestic bond yields have followed the operative rate downwards as the RBI and the government have emphasised of bringing rates lower through policy action and accommodative monetary policy in an attempt to spur growth. While the money market curve and the 3/5-year space have broadly followed suit, longer dated papers especially corporate bonds have remained somewhat anchored. The recent RBI commentary is a clear indication that the RBI intends to keep rates range bound. Unless we see a huge fiscal consolidation or downward growth or inflation shock, rate cuts look unlikely.

For 2021, we believe investors will be best suited to go up the duration curve which would serve investor needs of a higher risk reward. We anticipate the RBI will maintain rates at current levels over the course of the next year at minimum, post which we believe a gradual rising rate environment will ensue on the back of a recovery in the economy.

What’s your assessment on the Covid-hit economy? How will be the next three or four quarters?

The economy was already seeing signs of stagnation and companies were reeling from flagging demand. The Covid lockdown made things worse as factories and businesses were shut. However, businesses have opened up in a staggered manner and a strong festive demand has been a much-needed relief especially for small and medium businesses. We are very optimistic of the recovery currently playing out and the next 3 or 4 quarters. With high-frequency data improving, we maintain our view that the economy will reach the pre-pandemic level of output by end-2020. We remain constructive on the growth trend and expect the recovery to gain strength from Q2 of FY21 onwards. Accommodative monetary policy stance is likely to support the recovery and structural reforms to lift medium-term growth prospects.

With Covid cases yet to subside, when do you see investment and capex going up?

Covid has been a great opportunity for many companies to retool and refocus on their business. Lower funding costs and a recovering economic cycle augurs well for growth prospects of well managed businesses with innovative and well-articulated business models. Currently, low interest rates have also dramatically improved profitability and project IRRs (internal rate of return), thus benefiting long-term investors and promoters.

Which are the sectors yet to come out of problems? When do you expect recovery?

High frequency indicators already point to a recovery across most sectors. As India works towards becoming the next manufacturing and services hub of the world, global opportunities for demand buoyed by government incentives are likely to usher a multi-year growth phase.

The recovery is already underway and we expect a recovery in the next few quarters.

Source: The Indian Express

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