1.Your views on emerging markets and why should one diversify their portfolio?
- Geographical Portfolio diversification has caught attention for investors over the last 1-2 years – but more and more investors looking to invest abroad via mutual funds or setting up accounts directly. While US is a natural starting point, it’s equally important to invest in other parts of the world as well. Emerging markets offer excellent growth opportunities over the long-term.
- Potential for rapid GDP Growth – Typically, EM are perceived to experience rapid economic growth. Over the past few decades, EM’s contribution to world GDP has grown considerably from less than 30% in the 1980s to almost 50% in the 2020s_[1]_. Many large EM have a higher GDP growth rate over other EM and Developed markets globally.
- Favourable Demographics and Consumption – One key characteristic of EM markets is that its demand leads by exports and domestic consumption. This is primarily because ~85% of the worlds’ population is accounted by EM. A further whopping 90% of the world’s population under age 30 is from EM, and as per estimates, nearly 58% of the world’s middle-class populations will be from EM by 2030. Thus, the growing middle class and their consumption are key factors in the growth of EM.
- Favourable Demographics and Consumption – One key characteristic of EM markets is that its demand leads by exports and domestic consumption. This is primarily because ~85% of the worlds’ population is accounted by EM. A further whopping 90% of the world’s population under age 30 is from EM, and as per estimates, nearly 58% of the world’s middle-class populations will be from EM by 2030. Thus, the growing middle class and their consumption are key factors in the growth of EM.
- Increasing penetration of innovation and digitization – Back in history, EM were considered workshops of the world as low-cost manufacturers, raw material suppliers, and hub for outsourcing services. However, over past couple of decades, EM are increasingly becoming leader in innovation and digitization. Countries like Taiwan and Korea are leading manufacturers and suppliers of essential technology and electronics for the world.
2.Should passive be a part of investor strategy, and if so, is cost the only factor to consider?
-Yes I do believe passive should be a part of an investor strategy – most people think of passive as a nifty ETF or an index fund. But passive goes way beyond that – it includes debt ETFs/index funds, gold funds and also international funds like NASDAQ and S&P500. Within domestic equities – today you have passive funds across large caps, midcaps, multi caps, sector and other categories. It’s a simple low cost strategy that delivers excellent returns for long-term investors.
-Having said that – cost should not be the only consideration – investors should look at cost along with AUM of the fund and tracking error. Lower the tracking error – the more efficient the fund is at tracking the index.
3.Now that Sensex zoomed past 60k milestone, Is it time to reinvest in debt rather than equity?
-Investors should stick to their asset allocation – trying to time the markets in most cases hurts investors over the long-run. People have been talking about trimming equity exposure at 50k, 55k and 60k. In reality – it’s impossible to figure out when to invest in which asset classes. Stick to your asset allocation – only cut equity exposure if an investor needs to rebalance his/her portfolio.
4.Do you think new-age fund houses will have an influence on established fund houses as they try to emulate brokerage success in the mutual fund arena?
-New age fund houses, which have a differentiated strategy, will be able to have a big influence on the industry. Currently there are already a lot of options in all categories. Even within passive funds – there are numerous options available – and unlike stocks where each one is unique – mutual funds tend to be quite similar in nature. In terms of costs – India is already one of the lowest cost providers for passive funds.
5.After Zomato, we have a host of other consumer technology companies lining up with their IPOs, what do you make of the prospective internet companies coming to Dalal Street? Massive investment opportunity across the board or should investors be really specific.
-Historically, IPOs have rarely added long-term value for investors. Investors looking at IPOs should be as selective about IPOs as they are for individual stocks. Zomato’s IPO was a landmark one and it’s success paves the way for new age companies to make their way to Dalal Street. It’s also positive for Indian investors as they get to invest and own local homegrown companies.
This article as originally published in Financial Express on 28th October, 2022
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