Financial journey shouldn't be like a lottery game: A Balasubramanian, MD & CEO, Aditya Birla Sun Life

All eyes are on the Union Budget amid the ongoing uncertainty over the Covid-19 pandemic. In an interaction with Business Today, A Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC shared his views on the factors that Finance Minister Nirmala Sitharaman may consider to bring the economy back on track. He also threw some light on the outlook of the Indian equity market, mutual fund industry and cryptocurrencies. Edited excerpts

Business Today (BT): How different will 2022 be from 2020 and 2021 for equity investors?

Balasubramanian: In the year gone by 2020 and 2021, the substantial return has come from equity investing on the back of unprecedented liquidity led rally, however, expectations from 2022 need to be normalised in the backdrop of gradual liquidity unwinding. It will be pragmatic to moderate return expectations if one is hoping to see the same levels as in the last two years.

In 2022, markets are likely to be more discerning and stocks will be driven by fundamentals. Having said that, while market returns may be modest, the breadth will continue to improve as the domestic recovery gathers momentum. In addition to this, the economy will shift from a high optimistic phase to a growth phase which should bring price stability with moderate return from the stocks.

BT: Which sectors will outperform this year and why?

Balasubramanian: Discretionary consumption is picking up post-Covid and should sustain given young demographic with rising incomes and aspiration levels. Real estate is at the beginning of a new cycle, private sector investment is expected to pick up, and government spending on infrastructure development is expected to remain strong. The cyclical revival in the real estate sector is a theme to watch out for, both in terms of core real estate as well as ancillary businesses such as building materials, home improvement, etc.

Given the robust global economic recovery, exports have already recovered, and the outlook remains positive. IT service companies have a good tailwind and the China+1 strategy is helping sectors like textiles, chemicals and manufacturing, among others. Global service and goods demand are expected to show an uptick on the back of domestic issues within China. Sustainability is also going to be an important theme that will gain prominence with greater awareness of ESG parameters.

BT: How do you see the overall market breadth this year? What will drive it?

Balasubramanian: I broadly see the breadth of market widening on the back of the pick-up in industrial activities, along with the construction industry in the country. Government spending on infra building continues to keep the momentum. Increased levels of activities in the housing construction sectors would further gain momentum. On top of it, the private sector capex cycle is likely to return purely based on the realisation of price for the final products, as well as likely supply-side constraints in a certain segment of the sectors in the future.

In addition to these, lots of existing companies that are old in the system are now beginning to be managed by the new generation from the same family. And at the same time, more entrepreneurial skills seem to be getting developed among youngsters and therefore creating more space for new companies to come up in the future. In this context, if I look at the market trend for the year 2022, I will assign a high probability of improvement in the breadth of the market, therefore, many good well-governed mid and small-sized companies will benefit as a result.
 
BT: Name three factors that would drive the market direction going ahead?

Balasubramanian: I think all eyes will be on the Budget announcements to see if the commentary coming forward is pro-growth and which sectors are getting focused. Economic recovery is still gradual and there is a lot of scarring, especially in the SME and MSME space.

Markets will also look at how the divestment plan of some of the PSUs pan out, as well as the IPO of LIC. This will enable the government to raise funds and unlock the value of their investments. These actions, combined with continuous improvement of GST and tax collection should lead to fiscal improvement.

Thirdly, I think the trajectory of corporate earnings will also be the key marker of market direction especially in a year when markets are expected to be more discerning, and stocks will be driven by fundamentals.

BT: Can you highlight key risks for the ongoing rally on Dalal Street?

Balasubramanian: The inflation print is something that one will have to watch out for, with economic activity coming back and the demand for goods increasing with the gradual normalisation of activities. There are still supply-side constraints with Covid protocols applicable in many parts of the country. 

Another risk is increasing oil and commodity prices and the power supply scenario in India. This could add further supply-side pressure. As we enter 2022, some upcoming state elections could potentially create volatility in the market. Also, central bankers reversing their policy and then the outlook that is being expressed by them is something the markets will be looking at. RBI will not just look at inflation pressure but will also look at the global trend. Having said that, markets have already priced in some of these factors.

BT: How investors can beat the volatility amid the ongoing uncertainty over the Covid pandemic?

Balasubramanian: In the current market scenario, a balanced approach to asset allocation will be beneficial for investors. Categories such as large-cap funds, flexi cap funds with their liquidity advantage and dynamic asset allocation by way of balanced advantage funds and multi-asset allocator funds with their nature of diversifying risk are good picks to weather volatility. Invest in a staggered manner, something which systematic investment plans (SIP) will help you do and be cognizant of your risk appetite and time horizon to ensure portfolio construction happens in the right manner.

On the fixed-income side, given the anticipation of some increase in interest rate, it would make sense for debt fund investors to stay in the shorter end of the yield curve in categories like the short-term and ultra-short-term. Markets have already priced in the liquidity normalisation and beginning of rate hike cycles, in such a situation, investors can also look at target maturity funds that offer a good roll down potential.

BT: Do you follow cryptocurrencies? What is your advice to investors?

Balasubramanian: As a market participant I do keep track to some extent of what is going on in this space. My advice to investors will be to ensure they invest in avenues and asset classes that are well regulated. My investment approach has always been that of building a long-term portfolio as an investor myself. One’s financial journey should not be treated like a game of lottery. It needs focus, planning and patience. Be in asset classes that you understand and are aware of their risks. One needs to be cognizant of the fact that when the regulation comes around this segment, how it will behave one does not know. Therefore, one should be mindful of any such potential changes before committing large bets.
 
BT: Which type of stocks do you think one can buy in case of any correction?

Balasubramanian: Normally, being on the public platform, I don’t generally suggest any stock idea. However, owning a basket of stocks would be a key for anyone to build a successful portfolio. Depending upon the knowledge and comfort of the investors, they can choose between direct investing with the same principle or ETF or mutual fund diversified equity portfolios across different market caps.

Equity mutual funds have now clearly demarcated mandates as to the segment in which these funds can invest such as large cap, flexi cap or large and mid-cap or mid-cap, so on and so forth. Therefore, building a portfolio through mutual funds by choosing any of these fund offerings can also serve the purpose of individual investing needs.

BT: What is your take on IPO mart? India Inc garnered more than Rs 1 lakh crore from the primary market last year. How do you see the trend going ahead?

Balasubramanian: Trend change in the IPO market in the year 2021 is nothing but a reflection of rising risk appetite in both Indian investors and global investors. And at the same time, all new-age platforms in the form of disruptors or aggregators or companies with new modes of reaching out to customers were all being welcomed by the market and investors in the year 2021.

Most of the companies that have raised funds have got huge relevance in the consumer mind as well as the change in consumer behaviour. Increased risk appetite for investing in equity is only rising each passing day and hence IPO market should continue to remain robust in the years to come.

Also, the market is a great leveller in putting checks on such offerings from time to time, therefore, checks and balances would also evolve as we move forward. Last but not the least, increased IPOs have altered the traditional way of funding growth through debt to equity, which in my view is a good sign for the prosperity of any economy.
 
BT:  How do you see the trend in SIP inflows in 2022?

Balasubramanian: To answer this question, I will take reference to a recent SIP survey done by us. 83 per cent of respondents who have invested in SIPs themselves said they will recommend it to others as well. Almost 50 per cent of people think SIPs help in building long term corpus with the benefit of compounding interest and that would be the primary reason for them to recommend the SIP way of investing. The survey also revealed that SIPs helping maintain investment discipline was the single-most-important reason for 35 per cent of the respondents to choose the systematic way of investing. 

The reason why I allude to these findings is the fact that a SIP as an investment tool has found enduring acceptance from investors and will continue to be the single most useful tool for retail investors to participate in capital markets. So yes, it appears that monthly SIP flows will increase significantly in the years to come, driven by accessibility with technology, mutual fund houses expanding their reach to underpenetrated markets and a growing number of young professionals adopting the same. As a fund house, we have made this a focus to promote Har Ghar SIP to drive home the message that one can win with SIP.
 
BT: What are your expectations from the Union Budget?

Balasubramanian: We believe that the Union Budget this year will focus on supporting growth to return to a pre-Covid trajectory and minimising the scarring that has happened due to the pandemic since these are the biggest challenges facing the economy right now. One would expect the focus to remain in fuelling economic activity and support to employment generating industries.

Also read: Top 30 PMS strategies that made big money for ultra-rich investors in 2021

Also read: How to embed corporate governance in modern organisations

Also read: Rakesh Jhunjhunwala, Dolly Khanna, Ashish Kacholia increased stake in these firms in Q3