A global economic slowdown can be seen.How is it going to affect the market?
It depends on where the slowdown may hit. Worldwide, all the countries are inviting a slowdown to control inflation by raising interest rates. So it is going to have an impact on something somewhere. The higher interest rates in the Western world must be having an impact on consumption out there and eventually the exports from India.
So one had to be looking into detail. Already the IT sector has reacted to it in the last year itself. But then there are many more multiple companies in various sectors, which have a component which is export-oriented and one needs to be watching out for that.
When it comes to India, then one thing which is playing out, barring this is because of the relatively high base of last year. Some of the sectors may show some slowdown because of that. One needs to be very careful in assessing whether it is a slowdown or just a base effect or not.
Based on that, I would like to take a view for this year. Accordingly, it will be more stock specific across the board. So if you take, say, credit growth, which is the largest portion of the largecap segment because credit growth comprises almost 30% to 40% of the largecap indices. And that is where the base effect is going to play out. One needs to be very careful in assessing whether it is just a base effect or there is a slowdown or not.
How worried are you about FPI outflows? It has been quite volatile and now with China reopening, do you think that premium tag that India had will just fade away and once again the entire attention and the money of FPIs would be going towards China? Do you think the DIIs would be able to sustain it?
When it comes to flows – whether FPI or domestic flows – and especially if we are comparing it to China, then in my opinion, it is always about and rather than or because the scales are different. Whenever FIIs or even domestic investors invest, it would not be just because China is doing well, do not invest in India. It will be an independent decision in my opinion.
As far as allocation decisions of some of the regional funds are concerned, it may play some role but the big issue is not around that. The big issue is around the growth for India next year. More than that, one more element which plays out is the attractiveness of alternative asset classes and when it comes to that, then it is the interest rate which has repercussions on fixed income returns for the investors – both Indian or foreign investors.
So one has to adjust for inflation and rupee depreciation when it comes to the FPI flows, because for them the rupee depreciation also matters. So adjusting for the risk reward in Indian equity, how it is faring compared to other asset classes which are at a high level of interest rate – those things are driving the flows more than just the China angle per se.
Largecaps have been under pressure. Going forward in a few quarters, a lot will be data dependent in terms of movement of largecaps and also the corporate earnings. Being a fund manager, as part of your AMC strategy, what are the things that you are keeping in mind when it comes to the underperformance of largecap funds right now? How are you trying to beat the volatility and earn alpha out of it?
When it comes to the largecap fund, the recipe for the performance of funds versus the benchmarks has always been whether the earning growth of the portfolio is higher than the underlying benchmark as long as it delivers a good alpha. But post-Covid, some of the segments have not caught up.
