Banking sector credit growth continues to remain robust, hence, the sector preference may continue despite the near-term correction, said Lakshmi Iyer, CEO-Investment Advisory, Kotak Investment Advisors Limited, in an interview with MintGenie. She shared her views on the current fall in the market, tech stocks, passive funds, expectations from the upcoming Budget and more.
Q. The anticipation of further Fed rate hikes caused the market to sink. A bigger slowdown in the market is expected. What other possible reasons do you attribute to the current fall in the market?
Answer: Clearly the Fed is not done with rate hikes yet. That’s the messaging which is quite evident. Rate hike-led margin pressures may continue to persist in interest rate-sensitive sectors as companies may not be able to pass on the entire cost to consumers. All this, coupled with China’s medical crises potentially re-emerging, is unsettling, leading to a market correction. One can expect volatility to continue in the near to medium term.
Q. Banks, PSU, defence and railway stocks are doing really well. In which other market sectors do you anticipate growth in the coming months?
Answer: Banking sector credit growth continues to remain robust, hence, the sector preference may continue despite the near-term correction seen. The capital goods and engineering segment also looks good. There is also a need to selectively look at the pharma and healthcare sector – more as a bottom-up.
Q. The technology index is badly shaken up. Are technology stocks still overvalued due to their comparatively lower earnings?
Answer: The tech sector has faced headwinds especially given the global slowdown. Valuations are tending to more reasonable territory and once we get to hear some favourable guidance from tech companies post Q3 results, that could lead to some confidence restoration. The tech sector could see some underweight allocations being paired over the medium term.
Q. IIFL has launched a tax-saving passive fund. Do you feel that the time for passive funds has arrived finally?
Answer: Passive funds can co-exist alongside active funds, especially in large-cap spaces where alpha-generating options are relatively thin. Tax-saving funds have a minimum lock-in period which allows the manager to cherry-pick opportunities across mid and small-cap as well where over the longer term, one has seen reasonable alpha over benchmark indices.
Q. In this time of volatility that is only expected to be prolonged due to the ongoing geopolitical tensions, should investors shift their earnings to gilt funds?
Answer: Debt funds could be a potent option for investors in the coming year 2023. The interest rate hiking cycle is nearing an end, and most parts of the yield curve have already priced in rate hikes. Given the shape of the yield curve being flat, we prefer the mid-end (three to five years) segment for fixed income allocations.
Q. Other than equities, gold and commodities, what other asset classes do you recommend for investment?
Answer: A fair asset allocation is a combination of equities, fixed income and tail-end allocation to gold basis the risk profiling of the investor. Aside from this, one could also look at REITs and InvITs as an extension of fixed income allocation. One could very selectively look at the unlisted or private equity space as we have seen valuations correct from peak prime.
Q. What is your view on the markets in 2022?
Answer: 2022 was characterised by rate hikes across the globe, and markets gushing in to price it ahead of central bank actions. Currency played spoilsport as the USD was the undisputed king for most parts of the year.
Q. What are your expectations from the market in 2023?
Answer: 2023 could be the year of moderation. The central bank’s rate hike action could plateau out, though a pivot towards rate cut may not happen soon. We could see the return gap narrow between debt and equities as earnings momentum may lose steam, while carry in fixed income may continue to be elevated.
Q. Please share your expectations on the Budget.
Answer: We could expect some rationalising in capital gains tax across asset classes. We could also see a roadmap towards fiscal discipline.
Q. What is your advice to new investors in the market?
Answer: Please focus on asset allocation – sounds cliché, but worth the repeat. Also, risk profiling precedes asset allocation. Lastly, please don’t succumb to greed and fear as emotions while investing – they are the biggest impediments to wealth creation.
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First Published: 02 Jan 2023, 08:15 AM IST