‘Indian stocks always trade at a premium due to fast moving markets’

Several brokerage firms including Morgan Stanley and Goldman Sachs have downgraded the ratings of Indian stocks based on valuations. What do you think about the evaluation?

I think if you look at the way things are being seen around the world, India is by no means cheap. But one could also argue that Indian equities have always traded at a premium, potentially because the market has risen sharply. So, if your question is – is India highly rated – should you be underweight? Our view then is generally, India is not very cheap, it remains a reasonable long-term place to put money, and the biggest risk we see is around investor expectations. And it is not the risk that is unique to India, but the reality is that we are at a stage where the markets have provided very strong returns. As you know, the chances of repeating this type of return are very low. This does not mean that one will get bad returns; But it means that if an investor is looking to make money fast, it can be a problem, and so, it is positive for India that so many people are taking interest, but it is important for them to know that There will be ups and downs, and that they have the opportunity to build wealth by doing so over time, and not just by making a quick return.

You’ve been overweight on Japan and Europe since 2019, but the US continues to lead through tech stocks. Has your perspective changed?

We keep thinking that Europe in particular is very cheap. If you look at it from a valuation perspective, compared to other parts of the world, there are a lot of companies that look attractive, and therefore, when we are underweight or overweight, it does not affect our expected future returns. Varies on a base, and Europe underperformed meaningfully. So, we think there’s potential for higher annualized returns in the period to come, which is how we see it as compared to what we’ve been through. I would say that, in retrospect, everyone is surprised at the strong policy response in the US that has really opened up that market, and Europe has certainly been a little more cautious in its policy response, but they have caught up and tried. At the same time develop your market. And from a valuation perspective, you’ll understand how we think the expected returns are higher in the future. And I would say that, (in the US) also, we will continue to favor value-oriented investments because they have underperformed meaningfully, and their growth and output look relatively cheap compared to that.

With rates going up around the world, what are the prospects for debt investors?

If I were to count the number of people who say that a rate hike is imminent over the past 16 years, we will have a lot of losses, and so, it just points to the fact that it is difficult to predict that When will interest rates move?

Part of what you’re saying is in relation to where they are in developed markets and they can only go up, right? And so, they eventually will. And when that happens, it’s likely a tougher outcome for fixed-income investors, because the tailwind they enjoy from lower rates, which boosts total returns, will disappear. There are also options within fixed income, such as corporate loans, in which investors can do well. Importantly, if you are an investor, you should not think of taking your fixed income into equities or risk-bearing asset classes. At the end of the day, there’s a reason for having those asset classes – it’s sometimes to put the portfolio at risk, somewhere to increase returns.

When you say alternative liquid asset classes, what do they include?

This is essential to what we are seeing a lot today, that is, private equity. And, in private equity, money is locked in for multiple periods, so there is no liquidity in that kind of asset class. Liquid options are essentially a variety of strategies that are not used in traditional fixed income or traditional equities overall, but provide you with strategies that are available through merger arbitrage (those that use , which are relatively common), but there is a certain amount of assets going into it; Things like this, people who are using options and futures to build exposure. These are the very institutional strategies that are turning into a downmarket. In India, they are not that popular, so you may not have seen them, or they have not arrived yet.

The second fear that most of the investors or most of the individuals have in mind is that of inflation. What should people do to protect themselves from inflation?

I am a big believer in not trying to build a portfolio on macroeconomic loopholes. I think very few people see this successfully, and the reality is that most professional forecasters and observers of the markets are generally not right in these kinds of things, and my advice is to build a portfolio that works as an investor. Let me be wise to you, and stick to it for the long haul. That means, sometimes, you’re going to look a lot worse than you want to be, and you’ll make things look a lot better than they are; But the thing is, over time, you get the right results, and I worry about what I want to do, what results I want. That being said, in inflationary periods, stocks are an asset class, so I could see a situation where people could add a little more to equities, but I wouldn’t overdo it.

What is your view on crypto?

Put me in the basket of doubters. I think most investors are fine without it in their portfolio.