In Conversation With, Srinivas Rao Ravuri, CIO PGIM India Mutual Fund
"Investors Should Focus on Having Age Appropriate Asset Allocation"
Srinivas Rao Ravuri
CIO, PGIM India Mutual Fund
"Investors Should Focus on Having Age Appropriate Asset Allocation"
Which three major emerging investment themes do you expect to dominate over the next decade?
India itself is an emerging investment theme from a global perspective. India is currently the 5th largest economy, globally, and 3rd in terms of Purchasing Power Parity (PPP). India's importance and relevance in the global arena and particularly in emerging markets has risen and we expect this trend to continue. Given that India offers a stable political regime, a strong consumption driven story and a positive policy environment, we reckon investment in India to be an increasing theme over the next decade. Second theme is the emergence of India's manufacturing prowess. Given the volatile geopolitical situation, raw material uncertainty and the need for diversifying sourcing, China Plus One strategy should see increased prevalence.
Our GDP contribution is highly skewed towards services, and the next leg of growth should come from manufacturing aided by schemes such as Production Linked Incentive (PLI) and domestic manufacturing push. Third theme would be on the consumption side riding on the back of increasing per capita income. As more and more of India’s population moves upward economically, consumption quantity and quality both see an uptick. This trend also flows down to allied sectors such as financials, digitalisation which aide the above as well as see growth themselves.
How should retail investors navigate the current market volatility with mutual funds?
For any investor and retail investors in particular, time in market is much more important than timing the market. SIPs are the perfect method to smoothen out short term volatility and investors should continue investing through SIPs. Markets may be volatile in the short term, however, in the long term volatility is much lower. Assuming investors are investing for the long haul, best way for retail investors to navigate any volatility is to not look at portfolios on a daily basis and leave the investing to professional fund managers. Investors should focus on having age appropriate asset allocation which should help in accumulating goal based corpuses as well as address long term needs such as retirement. Having a trusted and competent advisor reduces financial anxiety and gives one a sense of financial freedom by navigating the chaos of information and options around us.
What do you make of the current equity market scenario? What are the pertinent risks facing domestic equity markets in H2FY23?
India has performed reasonably well in the near past and has outperformed other countries. Valuations though are not cheap, but neither are they high, as India has seen healthy earnings growth as well. While risks such as geopolitical uncertainties, commodity price volatility, supply chain uncertainties, high inflation and ensuing high interest rates persist, thankfully most of the above are global or transient in nature and are not necessarily inward looking. Nonetheless, risks are a part and parcel of equity investing and we acknowledge the same and attempt to mitigate them through diversification.
What changes have you made in your equity funds in view of the rising interest rates and volatility over the last few months?
At PGIM India MF, each fund manager is encouraged to take independent calls according to the mandate of the fund and his/ her views. This is particularly done to avoid duplication of portfolios and overinvestment in any sector/stock by us. Hence, there is no one answer to this question. However, in general we have been positive on financials (improving asset quality improving credit growth) and industrials (domestic manufacturing push) and underweight on FMCG, energy and utilities.
Ideal investment option for first timers, proper asset allocation, ELSS funds seems to turn the tide of returns year after year. How should one go about it?
For first timers, it would be prudent to invest in relatively lower volatility, diversified products with a view to invest for the long term. Given the above filters, diversified/flexicap, ELSS and large cap funds fit the bill. ELSS category benefits from an automatic lock in of 3 years, which we believe is the bare minimum investment horizon (if not more) to see returns of equities over other asset classes. Depending upon age and other commitments, investors should allocate money to mid and small cap funds or balanced/Hybrid Funds as per their risk appetite/age and individual requirements of the investor.
Over the span of your career thus far, what have been your key learnings from equity markets?
Over the years, one of the key learnings is, not be carried away by euphoria. It can be in any stock, sector or markets in general. Markets tend to swing between periods of extreme optimism and pessimism. Keeping expectations normalised and practical, helps to benefit from these extremes. A second somewhat related learning is to seek growth but not at any price. Growth at reasonable prices balances the risk reward equation largely and helps in generating long term alpha. Lastly, avoid risks such as over-leverage, lack of cash flow generating ability of an investment and questionable corporate governance. Watching out for these risks, helps avoid making big mistakes in a portfolio which are equally important as finding winners in the portfolio.