Date & Time:27th October 2021, 05:30 PM – 06:30 PM IST
Speaker: Anil Rego- MD & CIO, Right Horizons
Moderator: Sankalpo Pal-Biz. Development, PMS AIF WORLD

India growth story - from here to where? With a different perspective on Investment Risks

Generating consistent returns has for long been the motto of numerous portfolio managers and considering the current situation it is paramount. PMS AIF WORLD is a performance-focused, analysis-driven, data-backed new-age investment services firm. We offer informed investing experience to our clients and provide the best quality investment products that are managed by experienced money managers. Keeping the next Samvat in mind, we conducted a webinar with Mr.Anil Rego- MD & CIO, Right Horizons, and discussed the investing outlook and the various benefits of diversification.

Mr. Anil Rego, a CFA, has over 18 years of experience in the market and manages four funds at Right Horizons. Prior to Right Horizons Pvt. Ltd., he assumed the role of business planning, corporate finance and M&A at Wipro Technologies. While featuring on popular business channels on the television and various forms of print media, he believes in the contrarian style of investing. He is also a teacher at leading management institutes along with being an author of the book, ‘Honey I lost All Our Money.’

With the next Samvat right around the corner, 63% of the webinar audience believed that the current rally is poised to continue and enter some form of consolidation only after a year.  There has been a lot of fervour and excitement among investors since the Nifty crossed the 14k mark and has been traversing at an aggressive pace since then. It reflects the broader economic situation in our country and it is quite difficult to judge where it is headed. However, a brief understanding of the economic cycle helps us to gauge the market sentiment. To put things in perspective, interest rates in India have been 8% on an average over the last decade and it would be prudent to say that the current rates are bottoming out. Economic activity will continue to grow at a brisk pace as corporate capex picks up and credit expands. Suffice to say, India is at a crucial stage in the economic cycle and hence, a broad understanding about the outlook of the economy in the next 12 months is very important.

Corporate credit has bottomed out as companies are not eager to borrow and fund their expansion plans. However corporate earnings have a similar picture to show from the FY03-08, where it had a growth of 25% CAGR compared to earnings growth of 26% CAGR in FY20-22.

Major trends from corporate capex and housing sector also show that we are rising in the economic cycle. Corporate capex has bottomed out; however, an uptick is yet to be seen. Unsold housing inventory is at a 24-month low and Indians are now eager to buy homes for themselves. India has withered the recessionary phase and has come out of it very quickly.

Now that the major trends have shown that we have hit rock bottom and are on the rise to complete recovery, there are certain economic growth drivers that will act as the fuel for a sustained growth cycle. The median age in the country will be 28 by 2022 which will lead into increased participation in the workforce. Low interest rates will help companies borrow and fund their future plans. Start-ups in India will add 1.25% to GDP growth in the long term. Growth drivers in manufacturing like Make in India will benefit domestic producers and the lesser reliance on China will also act like a catalyst.

Now keeping the indicators in mind, the motto of Right Horizons Pvt. Ltd. is to live to the philosophy of delivering risk adjusted returns for all investors. The investing process includes a sound quantitative and technical framework that has helped them generate superior returns across time and strategies. They have entered and exited various stocks over the last 3 years in order to manage and mitigate risk. For example, according to their process, the financial sector was overvalued in late 2019 and the pharma sector was undervalued. Hence, they sold stocks on the financials side and added pharma. During the lows of 2020, they deployed equity across all portfolios to de-risk and take advantage from the dip. The withering of the pandemic led them to reduce their exposure to pharma and increased their weight age in cyclical and small/mid caps. They have increased their exposure to EV stocks and the finance sector as well. It goes to show that one needs a disciplined approach to investing in stock markets, be it an individual or a large fund house.

You don’t need to get swayed by emotions, be a little disciplined and you will see the results, says Mr. Anil Rego

The disciplined approach led them to phenomenal returns across funds like India Business Leader, Flexi cap and the Super Value fund. The performance and risk & return metrics have been commendable during tumultuous times as there were funds which could not survive the wave. It is good to be with the leader but great to be with the emerging leader and that has helped them survive difficult times. Now that the tough times are behind us, a typical growth cycle should last for 3-5 years where a fall of 25% could be expected in the long term. Hence, it is important to manage risk well as history is ripe with evidence where a full growth cycle has witnessed a 40%+ market fall. So, the focus for the next Samvat should be on sectors like Speciality Chemicals, Technology, Auto with a focus on EV Industry, contract manufacturing across multiple segments and financials.

However, keeping a tab on potential risks will help take calculated decisions. Foreign flows might hit a brake due to concerns regarding Fed hiking its rates. Another point of concern on the global front is the current situation of the Chinese economy. The Evergrande effect could spill into major economies, especially India. Moreover, commodity inflation spiralling into core inflation and policy focus being diluted with state elections are major concerns as well. Lastly, supply chain worries in some sectors like the chip conductor shortage has had a ripple effect in multiple segments.

Once the approach and the risks have been laid out, it is imperative to have a list of parameters to chalk out emerging leaders in various sectors. A stock could be identified if you could see a five-year sustained growth. Triggers need to be identified just the way Right Horizons could enter speciality chemicals and manufacturing sectors. One needs to understand the pulse or the theme right and that’s 50% of the job done. A bottoms-up stock picking approach could be ideal to identify stocks that are poised to grow over the next five years. The recent inflationary environment could also see investors splurging on stocks instead of booking profits. Investors are not going to spend less due to the inflationary trend but instead reap rewards for the future by investing in the correct stocks.

Data and relative valuations have helped Mr. Anil Rego and team to bring an end to the small/mid cap vs large cap debate. There is a correction going on in the former but they had suggested small/mid caps to clients over the last year and helped them with superior returns.  Mid cap IT has done well not in terms of stock price but in terms of business too. The suggestion is to be a little pragmatic and take advantage of moves.

It is going to be India’s decade in terms of growth and economic prosperity. It was very well established when the emerging market indices were compared where India stood out. Active managers are expected to beat the benchmark index in the next three years time frame. The active managers will help investors fall a little less during tough times ahead. They are the beacon of light that pave the way and caution investors or take part in active damage control. There have been instances where stellar performance by a mutual fund house was followed by its demise and closure of six of its debt schemes.

Lastly, the webinar ended on the topic of diversification and how effectively one should use it. Mr. Anil Rego suggests that investors need to take a higher level of risk when things are bad but turn conservative when things look eccentric. Following indicators and market trends will help investors understand the pulse of the market, leading to better diversified results. One needs to stay cautious with the IPO craze too as a sound understanding of the business model is necessary. All in all the next Samvat has a lot of opportunities for investors who need to grasp them and ride the Indian growth story with a cautious outlook.

RISK DISCLAIMER: Investments are subject to market-related risks. This write up is meant for general information purposes and not to be construed as any recommendation or advice. The investor must make their own analysis and decision depending upon risk appetite. Only those investors who have an aptitude and attitude to risk should consider the space of Alternates (PMS & AIFs). Past Performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments. Please read the disclosure documents carefully before investing. PMS & AIF products are market-linked and do not offer any guaranteed/assured returns. These are riskier investments, with a risk to principal amount as well. Thus, investors must make informed decisions. It is necessary to deep dive not only into the performance, but also into people, philosophy, portfolio, and price, before investing. We, at PMS AIF WORLD do such a detailed 5 P analysis.


Do Not Simply Invest, Make Informed Decisions

imageBook a call with our Experts