Though near-term challenges remain for markets, investors need to have a balanced portfolio with fixed income securities as a part of the core portfolio, says Suresh Soni, managing director and chief executive officer of Deutsche Asset Management India. In an interview with Ujjval Jauhari, Soni is talking about challenges to and opportunities in the equities markets. Edited excerpts:
How do you see things panning out now for corporate India, given the current challenging economic environment?
India has been through challenging times and a variety of factors have impacted the equity market performance. A combination of uncertain international environment, slowing domestic growth and deficient monsoon poses challenges to equity market performance in the near-term.
I, however, believe that market expectations are low and valuations are undemanding. As such, any change in the macro, government policy or foreign capital flows can lead to a positive shift in the equity markets.
We see some initiatives by the policy makers to help the mutual fund industry. What more would you like to see?
Large parts of the country’s capital are going towards fixed assets such as land and gold. So, the challenge is to effectively channelise domestic savings into productive segments of the economy.
We are a capital deficient country and require capital to fund our future growth. Foreign investors have not been forthcoming with new capital. Hence, savings have to be channelised through bank deposits or mutual funds. Somehow, the trend has been slower in the last few years and we need to reverse this in order to support economic growth
The desire would be to create the right kind of long-term incentives for people to save and invest into mutual funds. If you look at the insurance industry, we see long-term investments, whereas returns are little if you surrender early. In mutual funds, I don’t say we should restrict people from withdrawing, but there should be positive incentives for people to invest for a longer term.
I think the government should think about extending tax incentives on the line of 401-K in the US to encourage longer-term investments into mutual funds. Also, tax incentives should be available to both equity and fixed income products to allow investors to choose products in line with their risk profile.
How should investors allocate their funds?
One has to do financial planning to suit one’s risk appetite as well as the financial goals. Given the low equity valuations, I believe it is the right time for long-term investors to consider phased exposure to equities. I would always advise investors to have a balanced portfolio; hence an investment in fixed income securities has to be a part of the core portfolio.
In the current environment, I would encourage investors to consider long-term fixed income funds or bonds. We are broadly through with the rate hike cycle, and it is a matter of time before the rate cut happens. As such, it makes sense to lock into the current rates for the longer term.
How has the result season panned out until now? Are there any surprises?
Until now, the results have been in line and expectations were already muted. Markets were generally prepared for a relatively muted quarter and there has not been any major disappointment.
What is your view on the rupee movement?
We don’t trade currencies and as such don’t have the ability to forecast the currency levels. We can, however, see some factors changing for better for the rupee. Lower crude prices and falling gold imports in the recent quarters can have a positive impact on the current account.
What is your opinion on the information technology (IT) and the cement sectors?
The IT sector has been a poster-boy of the Indian growth story. As the industry faces growth challenges, there has been de-rating of the sector, and more specifically of some leading stocks. The cement sector was beaten down for a while. The industry suffered an oversupply situation till 2010-11. Now, that the demand supply situation is turning in favour of the cement players, the business outlook appears more promising.