Margins may shrink for asset management cos: Anand Rathi's Feroze Azeez

Maintaining an asset allocation of 80 per cent equity and 20 per cent debt is recommended for long-term wealth creation, Azeez said

Even if the markets go through a correction, the overall trend of using systematic investment plans (SIPs) is likely to continue, said Feroze Azeez, joint chief executive officer at Anand Rathi Wealth in an email interview with Devanshu Singla. Edited excerpts:

What are the potential risks for the markets, and have they already priced them in?

Risks may already be partially priced in. Investors have known about the (tariff) deadline for months, and many expect a limited or interim trade deal to avoid major disruptions. The recent strength in Indian equities reflects confidence in strong domestic growth and macro stability, which helps cushion external shocks.

 

Still, if talks break down and tariffs are re-imposed without a resolution plan, markets could react negatively. Export-heavy sectors may see short-term correction. Long-term investors, however, should not panic, as India’s broader fundamentals remain strong. Any market dip could be seen as an opportunity to buy.

What is the ideal asset allocation at the current juncture? 

Maintaining an asset allocation of 80 per cent equity and 20 per cent debt is recommended for long-term wealth creation. Diversification across market caps should be done, with an allocation of 55:23:22 in large, mid-and small-cap. Continue with systematic investment plans (SIPs) and any lump-sum investment should be staggered across four to six tranches.

Road ahead for flows to emerging and developed markets? How are the other central banks likely to respond to the US Federal Reserve’s moves?

  Alongside the Federal Reserve’s (Fed) statement on tariff concerns, recent employment data also suggest that US economic momentum remains favourable. So, the Fed is not necessitated to make immediate rate cuts but will keep an eye on how the inflation outlook shapes up. While tariffs may raise inflation beyond the Fed’s target to some extent, the current stimulus by way of tax cuts is likely to trigger demand that keeps inflation higher. However, the cut in medical aid and a few social measures may act as countervailing forces. With the fiscal deficit on the rise, interest rates are expected to remain higher. 

 

But, the weakening dollar strength is likely to result in some outflows from the US. Japan, the EU, China, and India can see money flowing into their markets. While most central banks have cut interest rates so far by 150 to 250 basis points (bps), they are likely to hold rates for some time so that further cuts can be induced in case of a slowdown. 

What about gold as an investment at the current levels? 

Gold can be considered as a partial substitute for debt in the portfolio, but only when there is a specific life goal linked to it, such as a wedding or major expense. Otherwise, it need not be a mandatory allocation.

 

Debt, too, is regaining favour, especially with the expectation that interest rates may start coming down globally over the next few quarters. Falling interest rates benefit bond prices, particularly long-duration instruments. 

 

Investors are advised to maintain a balanced portfolio, with a maximum of 10-20 per cent of debt and gold combined, depending on risk appetite and income needs. Like gold, debt works best as a stabiliser, not a core growth engine. Avoid overexposure to either and focus on long-term equity allocation for capital appreciation.

Is there a risk of SIP fatigue among retail investors?

Despite recent ups and downs in the market, SIP inflows have seen a growth of 27.67 per cent year-on-year, with May 25 seeing a 0.21 per cent month-on-month (MoM) increase. This shows that Indian retail investors are becoming more focused on long-term, disciplined investing.

 

Even if the markets go through a correction, the overall trend of using SIPs is likely to continue. This is because more people are learning about the benefits of systematic investing, and financial literacy is improving across the country. 

What is the road ahead for the wealth management industry?

Margins may shrink in some areas as the number of asset management companies (AMCs) has grown. Ten years ago, there were just 5 to 10 AMCs, and now there are over 40.

  But even today, the majority of investor money and over 55 per cent of total AUM is with the top 5 AMCs. Most investors continue to prefer names they trust. Unless a new player can deliver something truly different, leadership is likely to stay with existing names. For us, the focus is simple. Stick to our strategy, stay committed to doing what’s right for our clients, and always put their needs first.