Bullish or bearish year? Here’s what our fund managers have to say
What are the challenges of the global investment landscape and Indian financial markets? Arvind Chari, CIO of Quantum Advisors Pvt Ltd, and fund managers of Quantum Mutual Fund – Sorbh Gupta, Pankaj Pathak and Chirag Mehta share their thoughts on the impact on asset classes.
Despite the macroeconomic uncertainty, financial markets have remained resilient, will they last or will they be similar to the impact of 2012?
Arvind Chari, CIO, Quantum Advisors said: “India is no longer as ‘fragile’ as it was in 2012. the protracted war between Russia and Ukraine and soaring US Treasury yields. , Indian bond, currency and equity markets remained reasonably resilient. Corporate, household and bank balance sheets are much better than before.
Assuming the war does not drag on, we believe India’s medium-term economic outlook remains strong given the pick-up in business activity and macroeconomic tailwinds. We believe the Indian economy is on the cusp of a multi-year bull cycle, with real GDP returning to its long-term growth trend of 6-6.5% GDP growth. »
What happens next with the Fed’s $9 trillion balance sheet and how can investors be prepared for subsequent changes in monetary policy?
Arvind noted: “The real concern would be in the middle of this year when the FED announces its quantitative tightening (QT) plan. If the FED plans to sell Treasury bonds to reduce its balance sheet, it will push up US bond yields and may cause uncertainty in financial markets. Regarding bond allocation, we have argued that the best way to play the cycle of rising rates is to allocate to short-term funds such as cash to take advantage of rising interest rates. Additionally, these funds help qualify as emergency fund reserves due to low interest rate and credit risk.
Pankaj Pathak, Fund Manager, Fixed Income, agrees: “From a bond market perspective, this is a perfect storm. It was already grappling with growing inflationary pressures, a significant imbalance between supply and demand, and a less supportive global monetary policy. Now geopolitical tensions have added another layer of uncertainty to the market. A mix of liquid to money-market funds and dynamic short-term debt or low-credit-risk bond funds should remain the core fixed-income allocation for investors. Investors can place 12 months of their monthly expenses in a liquid fund system such as the Quantum Liquid Fund with an underlying portfolio of government securities, treasury bills, PSU/PFI bonds and, given Due to their short duration, these funds take on low interest rate risk.
Sorbh Gupta, Fund Manager, Equity, said: “Exports are doing well this time around, so the impact on the current account deficit should be contained. From India’s perspective, the conflict has very little direct impact on the economy and India has the potential to be an attractive market among emerging markets and will attract flows once the war subsides. India has the following buffers to mitigate the impact this time around:
- India’s foreign exchange reserves are around US$600 billion, which provides ample protection against any oil shocks.
- Over 50% of India’s CPI basket is food where India is self-sufficient (excluding edible oil and pulses).
- Unlike 2012, exports are doing well this time and the impact on the current account deficit should therefore be contained.
- Dynamic tax collection will also contribute to better manage the budget deficit. Nevertheless, history suggests that geopolitical risks and global macroeconomic shocks have been the perfect time to invest in Indian stocks. From SARS in 2003, GFC in 2008, Chinese growth scare in January 2016 to the pandemic related plunge in March 2020. Investors should use this market correction as an opportunity to add/increase their allocation to equities and to align it with their long-term financial situation. Goals. Be wary of new fund offerings that will invest in stocks with high valuations and those that are sensitive to the rise in the cost of capital. For now, investors can look to equity funds whose underlying stocks are reasonably valued.
A reasonably valued portfolio of quality stocks should generally outperform an expensive portfolio in a rising interest rate environment. Investors can further diversify their equity allocation using – Quantum Equity Fund of Funds, (70%) Quantum India ESG Equity Fund (15%) as well as the flagship program – Quantum Long Term Equity Value Fund (15%).
Should investors view macroeconomic uncertainty as an opportunity to increase their gold holdings?
Chirag Mehta, CIO, Quantum Mutual Fund said, “The tightening of monetary policy by the Fed is fundamentally negative for gold. But the Fed is lagging the curve and a further firming in inflation following economic sanctions against Russia’s top food and energy producer will lead to some catching up on its part rather than any real tightening. In addition, slowing growth will test the Fed’s aggressiveness in tightening liquidity and raising rates. Investors doubt the Fed will be able to strike a balance between controlling inflation and soft landing the economy as it tightens aggressively in the face of decades-high inflation and global growth vulnerable. As key parts of the US Treasury yield curve flatten and even invert, bond markets increasingly point to a recession. Given these realities, gold will remain a relevant asset class.
Mehta also adds: “Regardless of macroeconomic developments, it will be useful for investors to know that gold is not a tactical asset but has a strategic role to play in an investor’s portfolio. It remains a portfolio diversifier that enhances return and reduces risk due to its many properties.
- Ability to keep pace with inflation
- Long-term store of value
- Maintaining value in times of macroeconomic and geopolitical uncertainty
Investors who have already invested can stay put because gold helps balance the risk of your equity investments. Alternatively, ETFs could offer a strategic way to enter the gold market, diversify one’s portfolio and help offset downside risk.
One-stop solutions such as Multi Asset Fund of Funds can be a good choice to simplify an investor’s asset allocation needs. Quantum Multi Asset Fund of Funds offers a diversified portfolio and strives to generate better returns than bank fixed deposits with measured equity allocations. So when looking for a solution for your asset allocation needs, you need to make sure that you go for a fund that is unbiased and not imbalanced against a particular asset class,” Mehta said.
“Investors who prefer a hands-on approach can use the DIY (Do it Yourself) approach where investors can implement asset allocation themselves using Quantum’s proven 12-20-80 approach with underlying constituents of stocks, debt and gold.According to this strategy, 12 months of monthly expenses should be parked in a safe place, such as a cash system.After setting aside 12 months safe money, any remaining money could be split between 80% in stocks and 20% in gold.Investors should ideally choose efficient forms like gold fund of funds or gold ETFs.The 80% stocks need to be diversified across stock management styles. We have seen cycles for some styles and therefore investors need to be very diversified with this allocation,” Mehta concluded.
Quantum’s proprietary 12-20-80 asset allocation strategy – click here.
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