Tete-a-tete with Union AMC CIO Vinay Paharia
What is your take on third-quarter earnings? Where do you see major hits & misses in terms of sectors?
December quarter earnings season was better-than-expected on account of (1) pent-up demand from 1HFY21 releasing into the economy and (2) various cost-saving measures accruing from the lockdown. Management teams of most companies have guided for a better-than-expected growth outlook, assuming that the pandemic situation continues to improve, and economic activity goes back to normalcy in FY22.
The key sectors that surprised the street were information technology, consumer discretionary, industrials and real estate. On the other hand, results from sectors like consumer staples, pharma, and financials were a mixed bag.
The equity market is trading at an all-time high; how an individual investor should approach the equity market?
Based on our internal valuation framework, Nifty is currently trading at a significant premium to its fair value. Equity markets have borrowed some returns from the future, and we are cautious about the near-term prospects. However, the same is to be viewed in the context of a growing fair value. Based on our internal research, Nifty fair value could compound at early double-digit pace over the next 5 years. Hence, despite some reduction in prospective returns due to valuation reasons, equities could continue to be a better asset class from a long-term perspective on a relative basis.
Currently, we are recommending asset allocation products in the categories such as Balanced Advantage Fund and Hybrid Equity Fund to investors.
In terms of categories (large-cap, mid-cap & small-cap), which looks more attractive now?
Based on the prospective potential risk-returns assessment of our fund house universe, we find large-caps and small-caps more attractive than the mid-cap category.
As the interest rate has bottomed out, which category of debt funds an investor should have exposure to?
We recommend investors to invest in medium-term bond funds within the fixed income category.
What should be an ideal asset allocation for the moderate risk-taking investor now?
Our in-house asset allocation model called Union Market Pulse Indicator (UMPI) helps us in identifying the optimum asset allocation at any given point in time. The model is currently indicating a 30 per cent allocation to equities as ideal.
Disclaimer: The views expressed or statements made in this document are purely the views of the author and do not necessarily represent the views of either Union Asset Management Company Private Limited or its affiliates. The views, facts & figures in this document are as of February 22, 2021, unless stated otherwise.