• According to Lakshmi Iyer, CEO-Investment Advisor, Kotak Investment Advisors Ltd., there is a need to look at the pharma and healthcare sector selectively.
In an interview with Mintzini, Lakshmi Iyer, CEO-Investment Advisor, Kotak Investment Advisors Ltd said, credit growth to the banking sector continues to be strong, hence, the sector preference may continue despite near-term correction. He shares his thoughts on the current market crash, tech stocks, passive funds, expectations from the upcoming budget and much more.
Edited excerpts:
Q. Markets tanked on anticipation of a further Fed rate hike. A big recession is expected in the market. What other possible reasons do you consider for the current decline in the market?
Answer: Obviously the Fed has not raised rates yet. It's message is quite clear. Margins may remain under pressure due to rate hikes in interest rate-sensitive sectors as companies may not be able to pass on the entire cost to consumers. All of this, along with a possible re-emergence of China's medical crisis, is volatile, causing a market correction. Volatility can be expected to continue in the near to medium term.
Q. Bank, PSU, Defense and Railway stocks are doing really well. What other market segments do you expect to see growth in the coming months?
Answer: Credit growth to the banking sector continues to be strong, hence sector preference may continue despite near-term recovery. The capital goods and engineering segment is also doing well. There is also a need to look at the pharma and healthcare sector selectively – as a bottom-up.
Q. The Technology Index has been badly shaken. Are technology stocks still overvalued due to their relatively low earnings?
Answer: The tech sector has faced headwinds especially in view of the global slowdown. Valuations are moving towards more reasonable territory and once we hear some favorable guidance from tech companies post Q3 results, that could lead to some confidence restoration. Tech sector may see some underweight allocation in the medium term.
Q. IIFL has launched Tax Saving Passive Fund. Do you think the time has come for passive funds?
Answer: Passive funds can co-exist with active funds, especially in the large-cap space where alpha-generating options are relatively thin. Tax-saving funds have a minimum lock-in period which allows the manager to choose opportunities in mid- and small-caps, as well as where reasonable alpha is seen on benchmark indices over the long term.
Q. Due to the current geo-political tensions, volatility is expected to last longer during this time, should investors shift their earnings to gilt funds?
Answer: Debt funds can be a powerful option for investors in the coming year 2023. The interest rate hike cycle is about to end, and most parts of the yield curve are already priced in for rate hikes. Given the flattening of the yield curve, we prefer the mid-end (three to five years) segment for fixed income allocation.
Q. Apart from Equity, Gold and Commodities, what other asset classes do you recommend for investment?
Answer: An appropriate asset allocation is a combination of equity, fixed income and tail-end allocation to gold based on the risk profiling of the investor. Furthermore, REITs and InvITs can also be viewed as an extension of the fixed income allocation. The unlisted or private equity space can be viewed very selectively as we have seen valuations right from the peak prime.
Q. What is your view on the markets in 2022?
Answer: 2022 was characterized by rate hikes around the world, and markets were pricing this in ahead of central bank actions. Currency played poorly as USD was the undisputed king for most part of the year.
Q. What are your expectations from the market in 2023?
Answer: 2023 could be a year of moderation. Central bank rate hike action may stabilise, although a pivot towards a rate cut may not happen anytime soon. We may see the return gap between debt and equity narrowing as earnings momentum may slow down, while fixed income may continue to rise.
Q. Please share your expectations on the budget.
Answer: We can expect some rationalization in capital gains tax across all asset classes. We can also see a roadmap towards fiscal discipline.
Q. What is your advice to new investors in the market?
Answer: Please focus on asset allocation - sounds cliché, but bears repeating. Furthermore, risk profiling is done before asset allocation. Lastly, please don't succumb to greed and fear in the form of emotions while investing - they are the biggest hindrances to wealth creation.
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