“Indian stocks have always traded at a premium because the markets have risen faster”
A number of brokerages, including Morgan Stanley and Goldman Sachs, have downgraded Indian stocks on valuations. What do you think of valuations?
I think if you look at the way we see it in the world India is by no means cheap. But it’s also safe to say that Indian stocks have always traded at a premium, potentially because the market has grown faster. So if your question is, is India significantly overvalued? should you be underweight? Then our view is generally, India is not extremely cheap, it continues to be a reasonable long-term place to have money, and the biggest risk we see is in the expectations of people. investors. And this is not a risk unique to India, but the reality is that we are in a phase where the markets have provided very high returns. As you know, it is highly unlikely that these types of returns will be repeated. This does not mean that we will have bad returns; but it does mean that if an investor comes to make a quick buck it can be a problem, and therefore for India it is positive that so many people are interested but it is essential that they know that there will be ups and downs, and they have the potential to build wealth by doing it over time and not just flipping back.
You have been overweight Japan and Europe since 2019, but the United States has continued to advance thanks to technology stocks. Has your perspective changed?
We continue to think that Europe in particular is very cheap. If you look at it from a valuation perspective and then compared to other parts of the world, a lot of companies look attractive. So when we are underweight or overweight it will vary depending on our expected future returns and Europe. significantly underperformed. So, we think there is a likelihood of higher annualized returns in the coming period, compared to what we’ve been through, and that’s how we see it. I will say that, in retrospect, everyone was surprised by the strong political response from the United States that really sparked this market, and Europe has certainly been a little more careful in its policy response, but they’ve caught up. and are trying to develop their markets as well. And from a valuation point of view, you will understand how we might think that the expected future returns are higher there. And I would say that, (in) the United States as well, we would continue to favor value-oriented investments because they have underperformed significantly and appear relatively cheap relative to their growth and returns.
With rate hikes looming around the world, what is the outlook for debt investors?
If I were to count the number of people who have said that rate hikes are imminent in the past 16 years, then we’re going to have a lot of losers, and that just shows that it’s hard to predict when interest rates will be. really movement.
Part of what you’re saying is about their position in developed markets and they can only increase, right? And so, they will end up doing it. And when that happens, it is obviously a difficult outcome for those who are definitely fixed income investors, as the tailwind they benefit from lower rates that drive up total return will disappear. There are alternatives, even within fixed income securities, such as corporate debt, in which investors can profit. The important thing is that if you are an investor, you shouldn’t think about investing your fixed income securities in risky stocks or asset classes. Ultimately, there’s a reason these asset classes are there: sometimes it’s to reduce portfolio risk, somewhere to generate returns.
When you talk about alternative liquid asset classes, what do they cover?
What that implies is what we see a lot today, which is private equity. And, in private equity, the money is blocked for several periods, so there is no liquidity in these kinds of asset classes. Liquid alternatives are basically different types of strategies which, in total, are not necessarily used in traditional bonds or traditional stocks, but offer you strategies available through merger arbitrage (which people use, which are relatively common) , but have a fixed amount of assets going into it; that sort of thing, that people use options and futures to create exposures. These are generally very institutional strategies that become low-end. In India, they are not that popular, so you might not have seen them, or they haven’t arrived yet.
The other fear that drives most investors, or most individuals, is that of inflation. What should people do to protect themselves from inflation?
I am a big proponent of not trying to build a portfolio on macroeconomic shortcomings. I think very few people examine this successfully, and the reality is that most professional market predictors and watchers are generally wrong in these kinds of things, and my advice is to build a portfolio that makes sense for it. you as an investor, and stick to it for the long haul. This means that every now and then things will look a lot worse than what you would like things to be, and things will look a lot better than they are; but the point is that over time you get the right results, and what I would worry about is what I want to do, what I want. That being said, in times of inflation stocks tend to be an asset class, so I might see a situation where people could add a little more to stocks, but I wouldn’t overdo it.
What’s your take on crypto?
Put me in the skeptics’ basket. I think most investors do very well without it in their portfolios.
Never miss a story! Stay connected and informed with Mint. Download our app now !!