DAILY VOICE | Global diversification not only offers potentially higher returns but lowers overall portfolio risk: Somnath Mukherjee of ASK Wealth Advisor

Market Outlook

Somnath Mukherjee, Managing Partner & CIO at ASK Wealth Advisors, is of the opinion that investors should have global exposure. International diversification not just offer better returns (potentially) but is also lowers the overall risk of the portfolio.

Mukherjee is a market veteran of over 19 years. He has previously worked with Standard Chartered Bank and IIFL Wealth Management.

In an interview with Moneycontrol’s Kshitij Anand, Mukherjee said that for a first-time investor, it is best to stick to ETF than direct stocks. Edited Excerpt:

Q) Nifty is less than 2 percent away from its lifetime highs (as of May 25), while small & midcaps have already touched their highs last week. At a time of economic uncertainty in the face of COVID and rising expectations of inflation which could potentially lead to a rate hike, should investors buy the rally or wait for a dip? 

A) The gap between India’s macro and India’s select micro (that is represented in the capital markets) is quite large. There is macro volatility in the short term, but it doesn’t necessarily translate into negative equity market performance necessarily.

The correlation between macro and markets is low and has been weakening over a long-term secular trend.

Rate hikes are likely some time away – the RBI governor more than hinted at this in his mid-policy brief. “Whatever it takes” is the motto, and it would seem howsoever long it takes too!

Spikes in US and Indian inflation prints and declining FII flows are real risks, but RBI will likely look through them for now. A stable current account, a weaker macro usually also means lower oil imports, and a $ 500 billion Fx war-chest gives RBI enough elbow room for policy flexibility.

Q) Amid lockdown in April-May, how are June quarter earnings likely to pan out?

A) A bit early to conclude, but safe to say that domestic consumption-oriented sectors/companies will report weaker numbers.

On the other hand, companies geared more towards the global economy will tend to sustain better as most of the world is opening up quickly, with the US and China likely to report very strong economic numbers for the rest of the year.

We expect companies deriving more of their businesses from exports/offshore to do better.

Q) After a volatile May where do you see markets headed in June? Which are the key levels to watch, and any important events that could influence the trajectory of the market?

A) Not a technical chartist, so tough to predict technically. But, in the short run, sentiments will be driven by the spread of COVID, expansion of vaccine coverage, and the pace of reopening especially in the larger cities.

Q) Retail investors flocked to equity markets last year amid rock bottom valuations after a steep crash in March 2020. The second wave is unlikely to see the same enthusiasm. It will grow but probably not with the same momentum. Do you see any correction that can lead to investors booking profits from D-St?

A) Retail investors have generally made money in the current cycle. There is also likely to be a different demographic of retail today – with a lot of e-broking accounts driving volumes, these are the millennials that are likely driving the volumes.

Putting both together, it doesn’t seem likely that a correction is going to dim enthusiasm in a heartbeat.

Q) With cases on a decline, which sectors stand to benefit the most from the ‘unlock trade’?

A) Cyclicals and domestic consumption-oriented sectors.

Q) What has been your strategy in dealing with COVID-led volatility? 

A) Keep asset allocation focus; staggered deployments in risk assets; stick to quality – whether equities or fixed income or alternatives; make judicious selections in the private market space to boost portfolio alphas.

Q) What are your views on international diversifications say towards US equities or ETF. For first time investors which would make more sense?

A) All investors should diversify internationally. The type and diversity of companies offshore make for not just potentially better returns but also a far more risk-optimized portfolio. For a first-time investor, best to stick to ETF than direct stocks.

Q) Bitcoin bagged maximum headlines last week after the cryptocurrency plunged over 30%. What are your personal views — investment asset or speculative asset class?

A) All investments have an element of speculation – it is about risk. BTC is an enormously volatile asset class, not for everyone at this stage.

And not in large allocations either. Most investors should wait, learn, and watch for some time, before taking a plunge into allocating a serious amount of money into it.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.