Investing themes for today

By Morningstar |  22-03-17 | 

In a chat with ET NowUmang Papneja, the Chief Investment Officer at IIFL Wealth, spoke about three themes he is bullish on.

1. The pre-IPO and IPO theme. A lot of IPOs are expected to come out this year and if you stay stock specific and look at very good IPOs, a lot of money could be made.

2. Infrastructure will probably do well this year.

3. A lot of unbranded players are facing heat in their businesses. We are seeing a clear move from unbranded to branded. Some companies which are in the listed space are clearly taking benefit of this. This process has been hastened thanks to demonetisation. Because the amount of cash transaction has come down, it has lead to people buying more and more branded products.

A while back, he also shared his views at the Morningstar Investment Conference where he was a participant on a panel.

How are you viewing the investing landscape? Are you looking at it in terms of large versus mid or small cap?

We're viewing this quite differently actually.

This is the first time we are seeing divergence within asset classes.

Take the Nifty. Some pockets are extremely expensive and some extremely cheap. Look at real estate. Residential properties across the board are expensive, but commercial properties are probably much more reasonable in valuations. In fixed income, G-Secs everywhere can't be called cheap anymore, there is a certain segment which will always.

In asset classes you'll find where you can actually turn the money where most of the money is not going and that's where probably most of the earnings recovery is going to happen and that's the hope that that's where the money is going to be made.

We won’t go into crowded sectors. We'll probably try and capture something which people are not looking at.

A bottom-up approach.


What about top down purely in terms of valuation?

Normally your P/E and P/B probably would warrant for under allocation to equity at this moment. But there is some kind of uneasy calm around the markets and that is reflected in option prices. Put options for, say, 3 years have never been so cheap before. So, maybe if you want to buy protection, maybe just do it in the form of puts and don't book profits.

Do your clients really talk about concerns to their entire portfolio?

It's important to go into the psyche of the client. Why does he want that? What are his worries? His worries are not growth but protection of currency. So, the rupee has been a depreciating currency. He wants something which insulates him from rupee depreciation or loss of money which he's seeing and some part of your allocation can go there.

Traditionally, there is only one international asset which you can keep buying freely – gold. It's a national obsession. Because that was the only way which you could buy something denominated in dollars.

Instead, if we were allowed (SEBI does not allow us to do this) to buy dollar bond funds instead of say U.S. equities or European equities, then I think the kind of numbers we would be talking about being in international funds would have been very, very different, because the first thing he is looking at is preservation of capital and not growth, because India is anyway growth capital.

I am just crystal ball-gazing about what our clients are going to need in the future.

I think the key in the coming years, when interest rates are lower now, is to how to maximize your post-tax returns. So, there will be a lot of instruments which advisers will hunt for which will probably give you maximum bang for the buck on a post-tax basis.

For instance, preference shares. They are fixed income kind of instruments and dividends up to Rs 10 lakh are not taxed now – and that to at 10%. So, it might be a much better post-tax return – I'm just giving an example.

Secondly, I think people would want unlisted – probably they want to do a little bit of startup investing or they want to take some part in pre-IPO.

A very attractive asset class personally to me is rental yielding assets. I think that's going to be the ask for a lot of people.

International assets too.

I think, again, more and more fixed income kind of investments, keeping your wealth outside in a fixed income format is what people are going to ask for.

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