Nitin Singh of Avendus Wealth
Avendus Wealth Management is positive on digital, technology and consumer sectors with a focus on new-age businesses, says its Managing Director & CEO Nitin Singh, who believes India is known for being a growth market. At a 12-month forward P/E (price-to-earnings) of 20x, market valuations are back to punchy levels particularly considering that FY23 and FY24 aggregate earnings seem to have been trimmed a bit after Q1 results.
So, in the near term, Singh thinks there would be a 5-6 percent cool-off but says that it looked highly improbable that the market will again see the lows of mid-June.
Singh, who has over two decades of experience in private banking, asset management and wealth management, sees the probability of two key risks to the rally – one is adverse geopolitical developments, particularly relating to China-Taiwan, and the second is valuations back at elevated levels. Singh has earlier worked with Standard Chartered Bank, where he was Managing Director & Head of the Wealth Management business, and at HSBC, where he managed assets worth $ 40 billion.
Do you think the inflation print for coming quarters will undershoot the Reserve Bank of India’s (RBI) estimates given the declining commodity prices?
RBI’s expected inflation print for FY23 is 6.7 percent, with Q2, Q3 and Q4 estimates being 7.1 percent, 6.4 percent, and 5.8 percent respectively. I think most economists and analysts already expect the Q2 reading to undershoot 7.1 percent. Barring any adverse geopolitical developments pushing up fossil fuel/commodity prices again, assuming average inflation of 6 percent for the second half seems okay.
The market has a strong recovery from June lows, rising more than 18 percent. Do you see any risk factor(s) that can derail this rally in the coming months?
The broad market is now almost 20 percent up from the mid-June lows. Risk is inherent in investments, particularly in listed equities which have exhibited more-than-usual volatility over the past three years. We can probably see two key risks to the rally. First, the adverse geopolitical developments, particularly relating to China-Taiwan, which may result in another prolonged demand-supply imbalance on global trade of key items, and second, valuations are back at elevated levels, more so as underlying earnings haven’t really been upgraded after Q1 results.
Do you think the valuations are turning higher with the more than two-month rally in equity markets? How do you approach markets now?
I read a headline somewhere which said, ‘Investors Cancel ‘Apocalypse’ and make a Hard Pivot’ – which really seems to be the case. At a 12-month forward P/E (price-to-earnings) of 20x, market valuations are back to punchy levels, particularly considering that FY23 and FY24 aggregate earnings seem to have been trimmed a bit after Q1 results. So, our near-term view is that there should be a 5-6 percent cool-off around the corner, but looks highly improbable that we will again see the lows of mid-June.
The one sector that showed strong participation in the current financial year is Auto. Are you still bullish on the space or is it looking overvalued?
We have preferred to play the auto sector largely via ‘auto ancillary’ versus original equipment manufacturers (OEMs). It’s worked out well and the outlook remains healthy. Of course, with a strong across-the-board rally, there will probably be a pause and a case for profit booking before the market decides on how the upcoming festive season demand would unfold. The key risk, of course, is if the outlook of easing chip-shortage concerns reverses due to geopolitics.
What asset allocation strategy you are following at present and what’s not in favour right now?
Asset allocation is strategic based on investor’s risk profile and does not change with market movements. However, what is invested within the asset class can suit market dynamics. In debt, there is a move towards high quality and medium duration – through G-Sec and SDL funds. Since yields are attractive, investors are locking in yields through bonds and MLDs (market-linked debentures) on select issuers. In equity, as the rebound is broad-based, flexi cap portfolios are preferable. Among international funds, Chinese-based investment funds are out of favour.
What are the themes that you want to bet on now with the easing of several risk factors?
India is known for being a growth market. In equities, we continue to have a growth tilt to portfolios though value has outperformed in the first half of the year. In unlisted space, high-quality companies continue to get funding. We are positive on digital, technology and consumer sectors with a focus on new-age businesses. In high yield debt, the worries about the survival of companies and repayment risk in Covid-affected sectors are abating. Select issuers in the space look interesting. The managers in the venture debt and structured credit space have proven to manoeuvre various headwinds in the last few years making them worthy of long-term allocations.
As a wealth advisor, what are you advising investors considering the changing global environment?
On one hand, central bankers have made a resolve to fight inflation. On the other hand, inflation could be structurally elevated due to disruption of supply global chains, higher wage costs and geopolitical risks. This increases market volatility. It is important to insulate client portfolios from the vagaries of such volatility as much as possible. In debt, it can be achieved through locking in yields through bonds & MLDs and by taking exposure to high yield debt in structured credit and venture debt space. Absolute return hedge funds are acting as good parking vehicles for less than a one-year horizon. In equity, large cap-oriented growth portfolios in listed space and high-quality alternate equity funds can achieve it.
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