This is the best market investment strategy at any time, according to Viraj Gandhi of SAMCO MF

Buying great businesses at reasonable valuations and having the conviction to hold them through all the ups and downs is the best investment strategy at any time, he advised investors. 

Edited excerpts:

What factors will lead India towards a record high, yet again, this year?

One of the key factors driving the market sentiments is inflation and how it affects the interest rates. Since the last 2 months, we have witnessed some rise in inflation indicating that the interest rates may remain higher than originally anticipated. If inflation subsides going forward, a new life will be breathed into the markets taking it to new highs.

Some key risks investors need to watch out for in the last quarter of 2023?

There are a few things that investors have to be cautious about. One was high valuations in the small and mid-cap space, and another was a surprise higher-than-expected rate hike by the US FED.

Will there be any long-term impact of the Israel-Hamas conflict on India?

We do not believe that the conflict will have any long-term impact on India. The only thing that can be a hindrance is a rise in oil prices as we still depend a lot on importing of crude oil. There have been some knee-jerk reactions in the crude oil prices, but we believe they will stabilise.

How can investors use global events to their advantage?

Other things being equal, generally, such events provide a very small opportunity for investors to buy the dip. One should have a list of quality stocks that they want to invest in or add to the portfolio and invest whenever such an investment opportunity (unfortunate for the victims of such tensions) presents itself. Looking at the history, these opportunities sometimes last a few days to a few weeks. One thing that investors should pay great attention to is the valuation levels. When there is exuberance in the markets like it was in 2000, 2008, and 2018 (for Indian small and midcaps), the markets could fall even more or stay lower for a longer period of time.

What is the best investment strategy right now?

Investing is extremely personal. The majority of the gains in the markets come from holding on to great companies for a long period of time. It does not matter whether you own that business using any lens (growth, value, size, style). Buying great businesses at reasonable valuations and having the conviction to hold them through all the ups and downs is the best investment strategy at any time. This can become a bit overwhelming for most people, one can always use inversion – use negative filters, which businesses are not good, which businesses are very expensive, which businesses are going through a short-term windfall, and so on. The process then becomes a little less overwhelming.

Which sectors should one be looking at?

One should currently look at the IT sector as it has been beaten down a bit in the last 2 years. We feel that in a matter of a few months, it should come out of the negative sentiment that it currently is in. One more sector that one should look at is lending businesses i.e. Banks and NBFCs. We expect the rate hikes to pivot soon and also probably witness rate cuts in 2024 which will make credit-fueled consumption a tad easier and lead to its rise.

This conflict saw midcaps and smallcaps crashing more than the benchmarks. Do you believe the upside potential for broader market stocks is limited now?

Midcaps and smallcaps usually are subject to higher volatility, especially when their valuations are on either extreme. Currently, a good chunk of small and midcap stocks is trading at higher valuations. Whenever there is such a scenario, even a small negative news has a larger impact on the stock prices which we witnessed a few days back even though it was temporary. So, yes at least in the near term, we see more valuation comfort in the largecaps and larger midcaps.

FPIs have also turned sellers since September. What are the key reasons behind this outflow? Will this trend continue for the remainder of the year?

The key reason remains the same – US FED rate hikes and the interest date difference between India and the USA. This has a butterfly effect on the global markets. The rise in the dollar means lower net realisations for US investments and thus discourages them from investing at least in the short term. This trend may continue till the time there is no clarity as to when the rate hikes will pause and when will it start to come down. India as an investment destination has taken one of the top spots in the emerging markets and whenever clarity emerges on the interest rates, we should witness relatively larger sums flowing in the markets.

Apart from equities, what other assets should one accumulate in the current scenario? What, as per you, should a perfect model portfolio look like now?

Asset allocation should be decided on one’s cash flow needs over the next few years. Monies that would not be required for at least the next 5 years should be allocated to equities, rest should be in the debt markets depending on when such cashflows can be needed. Someone starting out right now should take this as well as market valuations into account. We also expect the rates to stabilise in the next year with some kind of rate cut benefiting bondholders. Looking at the current scenario, I think about 60 percent equities and 40 percent debt can be the ideal asset allocation.

One piece of advice for new investors?

Investing and making money in the markets may look very easy right now, especially in the small and midcap space, but always remember that in the long run, it’s not easy. Always seek expert advice.

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Updated: 13 Oct 2023, 04:52 PM IST