DAILY VOICE | REITs, InvITs under-owned asset class, investors should increase exposure, says Sameer Kaul of TrustPlutus Wealth

Market Outlook

Sameer Kaul, MD and CEO, TrustPlutus Wealth (India), thinks real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) an under-owned asset class, which investors should take more interest in.

Kaul, who has spent more than 25 years in retail banking, mortgages wealth management, says the next few quarters will be crucial to gauge if the growth in corporate earnings is in line with estimates that justify rich valuations. The market has risen 24 percent in 2021 on the back of strong economic and earnings growth expectations.

In an interview to Moneycontrol’s Sunil Shankar Matkar, Kaul says the RBI is likely to retain its accommodative stance but may reduce liquidity infusion when it meets later this week. Edited excerpts:

After a stellar run in September, do you think October will be the same for the market?

The market has run up significantly since March 2020 and in our view valuations are running ahead of ground reality. The next few quarters will be crucial to gauge whether the expected growth in corporate earnings is in line with estimates that can then justify the rich valuations.

Some of the triggers to watch are the Q2FY22 corporate earnings, any action from central banks (domestic as well as globally) and also the potential spike in inflation led by an increase in the price of commodities such as oil and natural gas.

Do you still think a third Covid wave poses a risk to Indian shares? What are the other risks that can derail the momentum?

At this point, with the improved vaccination rates, we sincerely hope that even if there are future waves, the impact on businesses and the economy is muted.

Other risk factors are withdrawal of liquidity by global central banks, increase in developed market interest rates and locally, earnings growth of companies should justify the valuations of equity markets.

What is your investment advice to HNI clients? Is it time to be cautious or play big?

We are recommending that investors stick to their asset allocation, which is based on their risk tolerance. Within that asset allocation, they should buy into high quality companies, perhaps in a staggered manner.

As far as fixed income is concerned, we are recommending high-quality credits as well as investing at the shorter end of the curve. We also like products with a defined maturity within the fixed income space.

What is your asset allocation strategy for investment avenues such as NFOs, AIFs, Invits, Reits, etc?

We tend to stay away from NFOs (new fund offerings) unless there is an investment thesis that is not captured by existing products. Again as far as AIFs (alternative investment funds) are concerned, we are selective and look at the value add to a client’s portfolio in terms of adding a particular investment strategy.

We remain excited about REITs (real estate investment trust) and InvITs (infrastructure investment trust) and think this is an under owned asset class where investors should increase exposure going ahead.

What are your views on India’s IPO boom? Why has the appetite gone up significantly after the coronavirus outbreak?

Massive amounts of liquidity have created greater exuberance in valuations of companies in private markets than in public markets. While some business models will succeed in every sector, we feel there is a greater risk of investors holding on to an investment that may turn into a lemon owing to poor unit economics.

What are your expectations from this week’s RBI monetary policy meeting? Do you expect any sectoral measures? What is your view of BFSI space, especially PSU banks?

We expect the RBI to retain its accommodative stance and do not believe that the RBI will increase interest rates in a hurry. The RBI may reduce their liquidity infusions in order to reduce excesses, especially in financial assets.

Since a lot of measures have already been taken to spruce up specific sectors, we are not expecting anything significant from this policy with regard to any specific sector. We remain neutral on PSU banks since we believe a lot of the repair is still work in progress on reducing the cost of credit and the returns generated by most of these banks are lower than expected.

Should one take a bullish view of banking as well as financial services in the light of measures taken by the government to support the banking sector? Is it time to look at PSU banks or stick to private banks only?

We have been bullish on the banking and wider financial services space but are focused on private sector banks and top tier NBFCs.

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