22 Dec 2021, Mumbai : To address concerns and uncertainty
around Omicron and inflation, Quantum Mutual Fund held a Panel discussion on
Dec 17, 2021, to take a deep dive into the macro-economic trends that are set
to shape the investment landscape in 2022. It highlighted the Year-End Asset
Outlook for Equities, Fixed Income and Gold and expectations for 2022. The Mega
Webinar saw Arvind Chari, CIO, Quantum Advisors and Fund Managers Nilesh
Shetty, Equity, Chirag Mehta, Alternative Investments, and Pankaj Pathak, Fixed
Income.
Arvind Chari, CIO, Quantum Advisors, said,
‘Since 2011-12, the real GDP growth had been on a downhill. This was compounded
due to the demonetization in 2016 and GST implementation in 2017, the IL&FS
Credit Crisis in 2018 and finally, Covid. However, after the initial six months
post the lockdown, we have since seen a decent recovery. Corporate India has
seen better margins and revenues and consumer sentiments, albeit low has been
picking up. We believe India is on the cusp of an economic revival and with a
little bit of luck, some sane policymaking, and the continuation of the
tailwinds listed below, India can sustain this recovery. 1) The Government has
maintained the fiscal deficit will remain at 4.5% for five years till FY 2026
which allows them a lot of spending power to support businesses, incomes and
spur infrastructure CAPEX. 2) India’s Corporate balance sheet, especially in
the large and listed space is looking much better and Bank NPA levels are
falling which bodes well for private CAPEX recovery. 3) Even if the domestic
economy is still recovering, the growth in the global economy has led to an
increase in Exports. 4) Residential housing, which has the highest multiplier
to growth is showing the first initial signs of recovery after a prolonged
slump. 5) India has seen increasing FDI and FII capital flows and is also
benefitting from global MNC’s and investors diversifying away from China
Though there are risks to economic recovery in
the form of rising inflation and interest rates, scarred incomes and
unemployment, and the possibility of a third wave, the long-term growth
potential seems intact.
Given all the uncertainty around, from an
investment perspective, we have always believed that Investors should follow a
simple asset allocation strategy to meet their investing and diversification
goals. Quantum’s 12-20-80 Asset Allocation is one such time-tested strategy.
First, investors set aside 12 months of expenses into an emergency fund such as
a liquid fund with no risks and then allocate the rest to 20% in Gold and 80%
in Equities.
Pankaj, Fund Manager, Fixed Income said, RBI
has been the biggest driver for the bond since the collapse of IL&FS in
2018. They cut rates and bought a record amount of bonds during this period.
Going forward, the RBI may not remain that supportive of the bond markets.
Inflation has been above the policy repo rate for almost two years. Till now,
RBI has looked through this number to support growth through low-interest
rates. Now, as growth is picking up at a faster pace, there is a chance that
RBI will start hiking interest rates soon. What will guide the market is at
what pace will RBI hike the interest rate. RBI is still prioritizing growth
over inflation and is not eager to disrupt this growth recovery. But if
inflation remains elevated, RBI may have to review this. We will see a very
slow rate hike going into 2022 or 2023. RBI has been intervening to keep the
bond yields low. The interventions may be sustained on a need basis. We can
expect interest rates to move higher but at a slower pace. The anticipation of
a rate hike is factored into the bond markets, especially at the longer end
bonds. Long term bond yields are on a level like before the pandemic. The
interest rate on short term debt instruments is likely to move higher which is
good news for liquid fund investors. We suggest investors to keep 12 months of
expenses in a liquid fund such as Quantum
Liquid Fund.”
Chirag Mehta, Senior Fund Manager, Alternative
Investments said, “Each asset serves a particular role in your portfolio.
Gold’s role is to bring stability, acting as a diversifier in times of market
stress. During Covid, when equity markets fell dramatically, diversified
portfolios with gold saw a much lower downside.
With the advent of low-interest rates and inflation rates rising, the
real interest rates have been negative, supporting gold There is an indication
from the Federal Reserve about hastening the monetary tightening process to
counter inflation. We need to see how aggressive the Central Bank can be.
Aggressive monetary tightening could impact growth and trigger market tantrums
and could necessitate a policy U-turn and thereby lead to a loss of credibility
for the Fed Reserve. Over the next few months, Gold will remain range bound.
Over the long term, Gold prices can be expected to keep pace with the elevated
money supply.
Regarding Equity outlook, Nilesh said, “Equity
markets have seen a significant rally and the primary driver is corporate
earnings. Looking at historical trends, corporate profits were stagnant from
2014-2020. Post covid, corporate profits just took off. Barring the dip during
the Delta wave, again the Q2FY22 corporate earnings numbers have taken
off. Earnings continue to surpass consensus estimates and most analysts
are upgrading their numbers. However, investors are concerned about whether
this trend is sustainable, three strong catalysts are unfolding in the Indian
economy, which makes us believe corporate earnings will continue to surprise
positively.
We are seeing a scenario where large companies
will continue to consolidate their market share and continue to invest and
become larger. Demonetization, GST, Covid have all impact the SME sector
disproportionately. Real estate, which has a strong multiplier effect on the
economy has seen a pickup driven by two-decade low-interest rates. The third
catalyst is rising hiring demand from IT companies which again will create a strong
demand environment as these are high paying jobs. Despite the high valuation,
we believe equity allocation is important. Our suggestion is an 80% allocation
in equities. Out of your allocation, you can invest 15% in a value fund that
gives you the potential to reduce downside risks, 15% in an ESG fund that
invests in companies that follow environmental, social and governance
parameters and 70% in a diversified equity fund of funds that invest in other
equity funds selected after qualitative and quantitative research.”
Disclaimer: The views expressed here in this
Article / Video are for general information and reading purpose only and do not
constitute any guidelines and recommendations on any course of action to be
followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing /
offering / communicating any indicative yield on investments made in the
scheme(s). The views are not meant to serve as a professional guide /
investment advice / intended to be an offer or solicitation for the purchase or
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reader. The Article / Video has been prepared on the basis of publicly
available information, internally developed data and other sources believed to
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provided herein, due care has been taken to ensure that the facts are accurate
and views given are fair and reasonable as on date. Readers of the Article /
Video should rely on information/data arising out of their own investigations
and advised to seek independent professional advice and arrive at an informed
decision before making any investments. None of the Quantum Advisors, Quantum
AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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