The Economic Times, Mar 20, 2017
Prateek Pant, Co-Founder and Head of Products & Solutions, Sanctum Wealth Management tells ET Wealth that the domestic investor is now far more sanguine about his investments, and not as easily rattled by volatility.
What are the key trends you have identified in your investment outlook report?
In our investment outlook report, we have identified the key trends likely to impact 2017. With the election of President Trump, the world is facing many unknowns around fiscal stimulus, protectionist policies, and elevated valuations on US equities. The developed markets have run far ahead of fundamentals and look expensive, having outperformed emerging markets over several years.
However, they are increasingly regressing in terms of fiscal stability and abandoning their prior monetary easing. Back home, the demons of demonetisation seem to be behind us and the next big disruption could be the implementation of GST. We are evaluating the distress within the real estate space and believe there could be some interesting opportunities there following RERA.
Do you believe the stock market can deliver healthy returns at current valuations?
There is no good time to enter the markets. From a longer-term perspective, it is far more important to stay invested in the market and add to positions regularly than to try and time it.
While the index is over-valued on some metrics, we are more concerned building client portfolios at reasonable valuations through diligent security selection. Further, it would be critical to have an appropriate time horizon, a minimum of three years for equity investments.
Equity funds are attracting sustained inflows. Is money flowing into the right funds?
We are witnessing the rise of the domestic investor. Unlike previous instances, the domestic investor is now far more sanguine about his investments, and not as easily rattled by volatility. Fund flows tend to chase returns and today the largest inflows are moving into the best performing funds.
While it’s hard to make a blanket statement, in some cases flows are causing skews in the fund constitution and a drift from the investment objective. We are keeping a close watch on identifying funds across a number of performance factors, ranging from performance to risk, to manager tenure, size, performance across various market cycles, etc. to ensure that we recommend the most attractive investment set to our clients.
Should investors take a cue from funds stopping inflows and realign their own MF portfolio at this juncture?
A fund stopping inflows is not necessarily a warning sign. In fact, a fund house may be acting prudently by stopping inflows rather than diluting the scheme positioning. In the case of investors, tactical allocation as guided by the adviser would take into account the valuations of sectors or market segments. That in conjunction with the investment horizon and risk appetite should be the cue for rebalancing portfolios.
After incidents like Taurus MF, how should investors approach debt MFs?
The fact that fixed income investments carry a certain degree of risk is not recognised and understood well by investors. In liquid funds, safety of capital and liquidity is paramount. Investors need to watch for credit composition of the liquid funds before investing.
In the case of income funds, credit analysis of underlying bonds and duration exposure is that much more important. However, investors may not have the bandwidth or access to information to understand the same. Factors like this further highlight the need for having a professional financial adviser.
How can conservative investors best deal with the scenario of declining interest rates from small saving schemes and FDs?
Markets are at a point where small savings rates are declining and post-tax returns are barely keeping up with inflation. If the investor has an appetite for marginal exposure to equities, disciplined investing in MIPs could be an option. Arbitrage funds and debt accrual funds are other alternatives.
Is the shift in financial savings from physical to financial assets likely to be sustained?
We think the shift to financial savings is a long-term trend and we are in the early innings as a catalyst to accelerate the flows to financial assets. Many investors have realised that liquidity is at a premium and hence vehicles such as REITs and real estate funds that provide access to hard assets will gain more popularity. In the current context, the recent outperformance of equities over other asset classes has reinforced this idea.
How far is NPS from becoming the ideal retirement solution?
The NPS does offer more flexibility with a choice of asset allocations and heightened chances of better returns given the greater focus on more volatile assets such as equities (compared to EPF, which is more focused on G-Sec, term deposits and debt). However, the corpus under NPS is taxable at the time of withdrawal.
This is the biggest drawback of the scheme, especially considering all other social security products in India enjoy EEE regime. Also, despite equities in India being a big wealth generator, contributors don’t have the option to invest more than 50% of their NPS allocation in equity irrespective of age. Then there are other issues like a compulsion to opt for annuity and inability to change annuity provider that are concern areas of the current NPS framework.