Rajiv Shastri, Director & Chief Executive Officer at NJ Asset Management
With a strong economy and sustained flow, Rajiv Shastri of NJ Asset Management expects the Indian equity markets to perform very well in the coming years.
Over the last three decades or so, the Indian equity market has proved its ability to create wealth by generating returns that are substantially higher than inflation. “We expect this to continue over the coming few decades as well,” says the director and chief executive officer with more than 25 years of experience in the mutual fund space.
Shastri expects retail participation to continue growing at a very fast pace both directly into the equity markets and indirectly through mutual funds. This will support domestic flows into the Indian equity markets for many years to come, says the chartered accountant.
Do you think India will become the third largest economy in the current decade considering the initiatives and reforms taken by the government?
India has many advantages that are assisting its potential over the coming years. Among them is our political and legal structure that gives international investors a lot of confidence. As a democracy with an independent legal framework to resolve disputes, we have an edge over many other countries. Add to that the demographic transformation that is underway as a result of better educational and skilling facilities and this makes India’s potential almost undeniable.
The change from a billion poor people to an economy of more than a billion consumers has been a painful one, but having travelled most of it is almost a certainty that India will emerge as one of the fastest growing large economies of the world.
What are the challenges that India may face while becoming the world’s third largest economy?
India’s continuing challenge is educating and skilling its workforce. And even though a lot has been done in this area, a lot still needs to be done.
While this does not pose a challenge to our growth and emergence as a leading economy, it will be crucial to ensuring that our people have an equal opportunity to contribute to this growth and benefit from it.
Do you expect any kind of slowdown in domestic flow to equity markets?
Even though retail participation in the Indian equity market has grown sharply over the last few years, we are still a long way away from widespread inclusion. We expect participation to continue growing at a very fast pace both directly into the equity markets and indirectly through mutual funds. This will support domestic flows into the Indian equity markets for many years to come.
So while a temporary slowdown in domestic flows is always possible due to valuation concerns or similar factors, a sustained slowdown can almost certainly be ruled out.
Do you expect the Indian equity market to be strong in the longer term?
With a strong economy and sustained flows, we expect the Indian equity markets to perform very well in the coming years. Over the last 3 decades or so, the Indian equity markets have proved their ability to create wealth by generating returns that are substantially higher than inflation.
We expect this to continue over the coming few decades as well. However, given the nature of equity markets, it would be unrealistic to expect this to happen in a smooth, linear manner. There will be periods of volatility along with periods of stability and periods of secular growth.
But from an overall perspective, the Indian equity markets are expected to remain well supported for a few more decades.
What is factor-based investing and why is it so important?
Factor-based investing is an investment approach that relies on data to make investment decisions. Factor based investors analyse past fundamental and market data to devise rules based on which we can identify the presence of certain factors that contribute positively to stock price performance.
Internationally, it has emerged as a strong alternative to traditional active investing in which investment decisions are made on a discretionary basis. The most common factors used internationally include Quality, Value, Momentum and Low Volatility.
One of the main benefits of factor based investing is the elimination of human bias at the execution stage. In India, this is still at a nascent stage and we are at the forefront of the research needed to make these factors work in the Indian context.
Internationally, factor-based funds have contributed to a substantial portion of the growth of the asset management industry especially over the last 15 years or so, primarily because they offer diversification at the investment approach level and not just at the implementation level. This is true for India as well and we believe that investing in these funds will offer investors a diversification opportunity that was not available earlier.
Do you think the retail participation is going to be strong going forward?
As mentioned earlier, we expect retail participation to continue growing for many more years. As we transition from a low income economy to a middle income economy, the household savings rate is expected to increase.
A larger part of these increased savings will happen in the form of financial savings and a larger part of these financial savings will come into the equity markets as more and more people achieve basic financial security and seek to create wealth. This is a natural outcome and has been witnessed in many economies across the world when they underwent a similar transition.
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