The Indian economy is in a sweet spot compared to many other countries, including the US, the UK, the Eurozone as well as Asian peers. It has been able to manage inflation, interest rates, the current account deficit and the fiscal deficit well, according to Srikanth Subramanian, CEO of Kotak Cherry, Kotak Investment Advisors’ online investment app that was launched in 2022.

In an interview with Moneycontrol, Subramanian shares his views on younger investors’ preference for financial investments over physical assets, the stock market rally, the run up in the mid- and small-cap segments, the possible interest rate trajectory, and the impact of global developments on the Indian markets. Edited excerpts:

The 18-45-year-olds constitute the core of your customer base today. Do they invest any differently?

Older individuals have seen market cycles. They exhibit much more patience and long-term tendencies.

Younger investors tend to look at gains over a very short to medium term period, have a ‘follow-the-community’ approach and are active on social media platforms. So, if there is a lot of noise around a particular investment avenue or stock, there is a tendency to be influenced by the trend.

However, one encouraging sign is these investors are not averse to exploring different avenues like real estate investment trusts (REITs), infrastructure investment trusts (InvITs), international investing or bonds.

There was a time when Indian investors had a strong inclination towards physical assets – real estate or gold. The newer generation prefers more organised financial wealth.

Also read: Budget@1O: Real estate scores hits on policy, but misses on implementation

The stock indices are scaling fresh peaks each day. How should retail investors approach the equity markets if they wish to invest now?

Markets aren’t cheap anymore. But the reality is India is slightly better placed in terms of macroeconomics when compared to some of the other markets globally including Asia. Despite two wars, oil has still not shot up to levels that we thought it would, which is a harbinger of good luck for us.

We have been able to manage inflation, interest rates and fiscal deficit within controllable limits. Our current account deficit is also within the means that we have projected. None of the macroeconomic parameters are disrupted the way they have been in many countries.

However, investors should keep in mind that the market cannot only be running one way up and keep yielding the kind of returns it has so far. There could be some sideways consolidation, but we don't foresee a vertical drop or a big crack in Indian markets.

Also read: Large, mid or smallcap? Find out which fund suits you the best

How do you look at the buoyancy around – and retail investors’ enthusiasm for – small and mid-cap stocks and mutual funds?

The more mature blue-chip companies, or large-cap stocks, seem to be in a much better place currently as compared to the mid- and small-caps, which have rallied much more – nearly double the broader market run-up. In some of these counters, the earnings have not really kept pace with the way the share prices have moved. So, we would exercise caution, not so much on the broader market, but on these two counters.

We would advocate caution for those entering the market with short-term gains in mind and trading mindsets. This is where markets can throw some negative surprises. A good healthy mix could be 70-75 percent (of your equity portfolio) towards large-caps and 25-30 percent towards mid- and small-caps. If the skew towards mid- and small-cap is disproportionately higher, that's the other area where we would exercise caution.

Will elections impact equity markets? Do you expect volatility, especially after the budget till the elections?

We are fairly neutral – doesn't mean that we are calling the market cheap. We don't see a big reason for investors to take money off the table unless their tenure of investment is shorter.

The market does not like uncertainty. If the market’s assumption is that there won't be uncertainty and there will be a clear winner, I would put the probability of high volatility as low. However, if the market believes that there could be a fractured verdict, then things could be different. So, over the next 1-2 months, we will find out.

What are the other domestic and global challenges that you foresee?

Two wars are on. There was an impending threat of spillover to much larger geographic areas but at least for the time being, they have been contained in a narrow zone. If these wars were to evolve in a way that negatively surprises the market, oil prices could shoot up, pushing up inflation.

Apart from this, the other big worry globally – which, fortunately for India, is not such a major concern – is that most countries are running deficits higher than at any point in their recent history, be it Japan, the US, the UK, or the Eurozone. From a global macro point of view, how these developed countries manage their ballooning deficits and what the impact of two ongoing wars is, will affect crude prices and global inflation. I would monitor these to watch out for negative surprises.

What is the likely interest rate trajectory going forward? What is the RBI’s stance likely to be on December 8?

Speculation is always a dangerous game, but for now, I think the pause will continue. We have the ammunition, the growth and broader macros seem okay. Inflation, while not in the zone that RBI would have ideally liked, is not in an out-of-control territory either.

Also read: RBI's MPC likely to keep repo rate steady, may revise GDP growth forecast

And when do you expect rates to start actually inching downwards?

We could see some rate softening towards the second half of 2024, if at all.

Where should I invest Rs 10 lakh today?

First of all, it has to be kept in mind that this Rs 10 lakh could mean different things to different people. So, we need to make some assumptions – the money belongs to a 30-40 year-old salaried investor without any liability. She is neither very conservative nor very aggressive, and does not require this money over the next 6-10 months.

In that case, she could look at investing 60-70 percent into equities, 25-30 percent into debt and the balance 10-15 percent into alternative investments. Further, equity investments could be a mix between passive and active funds – 35-40 percent into index funds or ETFs and the balance 55-60 percent into good quality active funds that have yielded good returns over a long period of time.

And within debt?

We like medium-term debt. That is, debt instruments which give opportunity to lock-in the yields till about five years.

There are two ways to do this – you can directly invest your debt portion into a debt fund with a five-year horizon or invest 50 percent into funds with three-year duration and 50 percent into 10-year duration plans. In terms of alternative investments – that is, 10 percent of your investment amount – 5 percent should be in gold and the balance 5 percent should be deployed into instruments such as REITs. Gold can act as a good protection against any serious volatility in equity markets, US dollar or interest rates fuelled by any global scenario.

2023-12-08T03:12:18Z dg43tfdfdgfd