FIIs expected to return to the Indian equity market in 2022: Abhijit Bhave

The recent FII outflows can also be viewed as a year-end phenomenon and a possible knee-jerk reaction to recent events, Bhave said

As markets turn volatile in the backdrop of policy actions of major global central banks and year-end profit booking by foreign investors, ABHIJIT BHAVE, chief executive officer at Fisdom Private Wealth, tells Puneet Wadhwa in an interview that for 2022, investors should build portfolios around a blend of low-cost index funds/ETFs to participate in the broader market, as well as a debt exposure via mutual funds (MFs) or direct bond purchases. Edited excerpts:

How do you see 2022 shaping up for global equity markets, including India?

The theme for calendar year 2022 (Cy22) will be exceptional to normalisation. As the post-Covid support from the governments and central banks in the form of fiscal and monetary policy gets gradually eliminated, a clear transition of the economies and policies towards a more normal state is expected. In 2022, policy makers’ attention would be focused more on managing inflation while maintaining growth. 

As supply chain challenges get resolved, vaccination levels rise and more people return to the workplace, we expect inflation to peak in the first quarter of 2022 and then gradually reduce and move towards the central banks’ target rates by the 2022-end. The near-complete removal of stimulus, modest rate hikes in the second half of 2022 and the return of economic growth to a sustainable level will all contribute to increasing volatility across asset classes.

Are the days of easy money making over?

The overall economic environment, both domestically and globally, is one of expansion. As interest rates rise and the US Federal Reserve withdraws stimulus, the stock markets’ focus will shift to high-quality stocks. We envisage some money moving into defensive sectors and large-caps as volatility increases. Investors’ preferred bets may be across sectors like consumer discretionary, private banks, information technology (IT), pharma, along with selected industrials based on the capex recovery.

How do you see foreign institutional investors approach emerging markets (EMs) in 2022? 

The Fed's decision to raise rates will decrease the interest differentials between India and the United States also making Indian debt less attractive to FIIs. The recent FII outflows can also be viewed as a year-end phenomenon and a possible knee-jerk reaction to recent events. FIIs are expected to return in 2022 as the structural bull-run in Indian equities is likely to continue, and the Indian economy cruises along an expected rate of over 9 per cent with a stable and strong central government at the helm.

What's the mood among your HNI clients?

HNIs' investing habits have shifted dramatically in recent years with low-cost ETFs and Index Funds gaining appeal and alternative investments becoming more popular among sophisticated investors. They have also actively participated in Sovereign Gold Bonds/Gold ETFs. Real estate investment trusts (REITs) have grown in popularity, while infrastructure investment trusts (InvITs) have emerged as a popular way to invest in infrastructure assets. A significant amount of money is also being invested overseas through RBI-approved, Liberalised Remittance Scheme (LRS), along with exposure to international stocks, directly and through feeder funds. The slew of initial public offers (IPOs) hitting Indian exchanges have attracted the HNIs like never before to pre-IPO unlisted investments as well as to the primary markets.
 

Is life tougher for wealth management boutiques now, especially after discount broking houses and traditional ones offering a similar set of solutions to investors?

In recent years, investors have become increasingly cost-conscious, and the wealth management business has turned its focus to providing better client experience and innovative product solutions and that too at a lower cost. Majority of the future incremental market growth will go to ‘WealthTech’ enterprises with a "phygital" (physical + digital) model that goes beyond the traditional firms as well as ‘technology-only’ wealth management firms. 

What is an ideal portfolio mix you suggest investors have as they head into 2022?

Customised portfolios should be built around a blend of low-cost index funds/ETFs to participate in the broader market, as well as a debt exposure via mutual funds (MFs) or direct bond purchases. A 5 – 7 per cent exposure to gold through Gold ETFs or Sovereign Gold Bonds (SGBs) and a modest exposure to alternatives like private equity funds for extra alpha, can see investors ride successfully through the year 2022.