Key driver of returns is asset allocation, not market timing: Ajit Deshmukh

US markets have seen significant corrections in the last 18 months and 10-15% allocation to US equities in a staggered way can be a prudent diversification, says Ajit Deshmukh, Equirus Wealth MD

Equity markets across the globe have been volatile thus far in calendar year 2023 (CY23) amid higher interest rates, sticky inflation and growing worries about a recession. In a conversation, AJIT DESHMUKH, managing director at Equirus Wealth tells Harshita Singh that investors should allocate long-term capital across different asset classes instead of timing the market to drive returns. Edited excerpts:

How do you see the remaining part of CY23 shaping up for different asset classes - equity, debt, gold, real estate etc?

Equities have been sideways for the last 18 months and the markets are consolidating after witnessing a vertical rise from Covid-19 lows to the highs made in the second half of CY21 (October 21). The valuations, especially for large-caps, are marginally higher than the long-period averages for Indian equities.

We see a very stock-specific market going forward for CY23. Interest rates around the globe and locally seem to have peaked. The pace and magnitude of the hikes especially in the US was unprecedented but largely has anchored high inflation. Central bankers will continue to be data-dependent in forming monetary policies from here on. Given all this, medium-to-long term debt investors should allocate capital in a staggered manner at these levels. Gold/real estate cycles are long-term in nature and it's prudent to allocate patient capital to these asset classes. Investors should stick to strategic asset allocation and not chase returns and must avoid prediction investments. The key driver of returns is asset allocation and not market timing.

Are your high-net-worth clients willing to open their purses and invest aggressively over the next few months? Which asset classes are they more keen to deploy their funds to?

We have seen an appetite in alternative investment space, especially Venture Capital, Private Equity and Credit and Mid-Market growth funds. The investment horizon for these funds in general is 7-10 years and their risk appetite and time horizon allow them to allocate capital accordingly. Our markets are following the developed market path where Private Equity or Alternate Investments are a preferred vehicle to invest.

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

It’s difficult to completely automate Wealth Management. Whilst technology helps to make informed decisions, it can’t replace a human touch. As the complexity of wealth products increases and regulations also become more and more stringent, a large platform, which has best-in-class wealth tech and a seasoned human resource will be the solution.

Do you think diversification into international markets for Indian investors makes sense at the current juncture? Which markets look attractive from a medium-to-long-term perspective?

We completely subscribe to the idea of international diversification in the portfolio. Again, the approach here is to get exposure to the best businesses across the globe. Whilst our markets have fared well over the longer term, we have witnessed good runs on the international markets as well. Developed markets, especially the US, have seen significant corrections in the last 18 months. Investors can look at their international weights and take a call accordingly. 10-15 per cent allocation into US equities in a staggered way can be a prudent diversification strategy. India still remains a top draw for long-term capital and can carry 75-80 per cent portfolio allocation.

After a mixed 2022, what does the road look like for capital market deals (IPOs) and M&As this year?

Looking at the current global economic scenario of recessionary fears, the approach may be soft. The short-term economic outlook remains clouded by global recession fears and rising interest rates as central banks try to tame record inflation in many regions. Primary market and M&A deals tend to slow during times of uncertainty or market volatility. However, these challenging conditions create opportunities for buyers to achieve better returns and even outsize growth. As we have been saying, looking at the long-term growth opportunities, India is on a strong foot and has been witnessing strong growth in M&A deals, driven by record levels of cash and availability of assets.