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However, he is bullish on haven asset gold and expects the yellow metal to outshine. “A US economic slowdown, supported by an extended rate cut cycle should lead to a weakening dollar and trigger a further shift by central banks away from dollar to gold. Hence, the outlook for gold also remains positive with double-digit returns possible,” Subramaniam said in an interview with ETMarkets. Edited excerpts:
Indian equities seem to be on the one-way road. How are you identifying bottom-up opportunities in such a market?
Sunil Subramaniam: Whatever be the state of the market – our fundamental approach doesn’t change – seek Good Quality Growth businesses with good management at reasonable medium term DCF-based valuations.
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Consistently growing businesses which look overpriced on 1-year forward PE often look more reasonable when viewed from a 3-5 years PEG measurement.
Tell us the thought behind launching a multi-asset allocation fund?
Sunil Subramaniam: The Finance Bill opened up a new window of opportunities to look at offering commodities exposure also to our customers from a tax efficiency perspective.
Our research indicated that with a negative correlation to equities and a long term double-digit return prospect derived from a rolling returns analysis over the last 18 years, the best commodity to blend with equity is gold.
Hence, we chose to offer an equity taxation oriented product (min 65% equity) with only gold and maximum 25% gold as an almost fixed asset allocation product.
Can you share your outlook for all the three asset classes for 2024 – equity, debt, and gold? Which asset class could outperform the others?
Sunil Subramaniam: Equity – A good first half, with FPI flows following an expectation of policy continuity and continuing growth in the domestic SIP book is auguring well for this asset class. The second half could be volatile with a proper budget being presented, US election related volatility and potential oil price spike next winter.
Hence, equity return expectations should be tempered down to low double digits for the year.
Debt – Expectations of an RBI rate cut following a similar action by the US Fed need to be tempered down as rate hikes by RBI were much less than the Fed. Hence, MTM gains may be muted and only accrual of 7-8% should be factored in.
Gold – A US economic slowdown, supported by an extended rate cut cycle should lead to a weakening dollar and trigger a further shift by central banks away from dollar to gold. Hence, the outlook for gold also remains positive with double-digit returns possible.
Which segment within equity looks promising even after the stellar run we have seen recently?
Sunil Subramaniam: Consumption and banking have been starved of equity inflows in the recent past – there should be a reversion to mean with the return of the FPIs. To a lesser extent, IT and pharma should also benefit from this.
Which are the themes that you would consider betting on as part of your multi-asset allocation fund?
Sunil Subramaniam: This fund will have a 75-80% largecap oriented portfolio, so again, BFSI, consumption and IT would take up a reasonable allocation.
What asset allocation strategy would you recommend to clients for the event-heavy 2024?
Sunil Subramaniam: A large cap-oriented equity with appropriate allocation to gold and debt based on the risk profile is something investors can consider.
With India getting included in two global bond indices this year, do you think FII inflows in debt could outpace that in equity in 2024?
Sunil Subramaniam: It depends on the government and RBI on whether they want to increase exposure to external debt from a risk perspective. Historically, we have been conservative on that front. So we need to wait and watch.
As FII inflows get influenced by several global factors, do you think DII inflows will continue unabated in 2024 and what are the key drivers of the same?
Sunil Subramaniam: Strong belief in India’s growth story and a perception of this government as pro-growth and the self fulfilling nature of the stock markets in continuing to deliver double-digit returns, which augurs well for the continuance of domestic flows.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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