Where should you invest money in 2023? Radhika Gupta of Edelweiss AMC picks best bet

Radhika Gupta, MD and CEO of Edelweiss AMC, took over charge of the company in February 2017. Since then, assets under management (AUM) of the company has increased from Rs 6,000 crore to more than Rs 91,000 crore in the span of just five years. In a freewheeling interview with Business Today, she discusses how markets are expected to perform going forward.
    
BT: What is your big call in the market right now?

Radhika Gupta: Our view has always been asset allocation focused. That said, rising yields offer one opportunity to lock in money at higher rates for the long term. So, long-term oriented target maturity funds in today's regime might be a very good option, especially for people who want to lock in for 10-15 years.
 
BT: What is your view on equities right now?

Radhika Gupta: India's domestic economy is in good shape. Earnings are rebounding from our historical low, consumption is picking up post COVID. In that sense, India is a bit outperformer compared to global peers, and what we have seen is that earnings growth is encouraging. In that sense and from one to three years trajectory, I think you should not be worried about equities at all. And I think our markets’ robustness is a testament to that. The journey could be volatile, particularly, we said that this year will be a year of two halves. The first half of the year would be volatile because of so many geopolitical factors, interest rates, etc. I think the global volatility is going to continue.

BT: Which themes may play out in 2023?

Radhika Gupta: May be domestically driven themes rather than export oriented or companies with strong global business. Focus will be on cyclicals that benefit from the revival of the domestic economy. Beneficiaries of the schemes like PLIs. The whole manufacturing movement will also be in the focus.
 
BT: Between value and momentum investing, what strategy will work in 2023?

Radhika Gupta: We run multiple strategies now. Our equity funds are largely growth-oriented funds, but they don't buy at any price. They look for companies that are leaders in categories. I think momentum is another approach, we've launched a passive fund in the space. And if you look at data over many years, there are years when growth does better, and there are years when momentum does better. If my mid cap fund active mid cap fund is running on a growth style, then it has to stick to that style.
 
BT: Is it a good time to invest in debt funds compared to FDs?

Radhika Gupta: Always a good time to be in debt funds compared to FDs for a full-time semester. Because in debt funds, there is an indexation benefit. So 20 per cent, on a 5 per cent rate of inflation, means you pay less than 10 per cent in tax versus marginal tax. I think when the government of India is helping you save tax, you should do it. And now the target maturity fund structure basically mimics FDs with that kind of safety, transparency, and liquidity.
 
BT: How attractive are State Deposit Loans (SDLs) at this point in time?

Radhika Gupta: Target maturity funds can be of three types SDL, G sec, and AAA PSUs, which is quasi sovereign. I actually think people should not obsess with the underlying combination, because AAA PSUs, SDL, or G Secs these are all highest rated bonds. G SEC is the most secured and safe. SDL and G Sec actually carry the same rating as they are both sovereigns. There was a period when because of supply issues, SDL used to have a little spread over G Secs. But I think a consumer should not be obsessed with and should focus on investing and matching their goals or targets with the maturity of the fund.
 
BT: What should be one’s asset allocation strategy?

Radhika Gupta: It really depends on individual circumstances. It's not age dependent. My father is 70. And he's is 80 per cent equity. I am less than 40 and I'm much more conservative with 50-60 per cent. So I think asset allocation is extremely personal. The right asset allocation has a mix of domestic and international equities, fixed income, etc. If you have a 20-30 per cent fall in the market, you don’t get nervous I think that's the right measure.
 
BT: Are we near terminal interest rates? Do you see a further rate hike?

Radhika Gupta: It's very hard to say whether you are at the top or will there be 25-40 bps cut. We believe that compared to global counterparts, inflation is not as much of a problem in India as we have seen these levels. I can't comment on rate hike. It's hard to comment as it depends on policy to policy. But what I would say is RBI definitely would front load rate hike. And then at least getting to a point where this would hopefully be ending.
 
BT: What are your views on passive investing vis a vis active investing?

Radhika Gupta: We don't think actively managed funds will not make money. All my allocation today is in actively managed funds. And we've had the fortune of running small cap funds with meaningful Alpha. I also don't think it's fair to compare to the US because our equity penetration is much lower than US. It's far more. We launched passive funds for two reasons. One it is a trend for the future. Second there's a set of consumers who seek passive just for the simplicity of the product, they don't want to have the choice. I have a fund for large and mid cap index. For my son, I think it's a great fund, because I'm gonna make an investment for 18 years. So I just want broad equity market exposure. For my own portfolio I have actively managed funds. He may have a passive one.
 
BT: What are some of the challenges for the industry right now?

Radhika Gupta: It's a competitive industry. If you look at the long term, I'm very optimistic about the industry. I think there's no reason it won't grow 15-20 per cent year on year because there is under penetration so much. We've got a lot of investors during the COVID. So many young people are looking at mutual funds. Opportunities are large. The challenge for us is to make sure that these investors come in for the right reasons and stay like that.
 
BT: What is the one lesson do you want to give to retail investors?

Radhika Gupta: Avoid FOMO. Avoid doing something because someone else do. And I think this lesson is extremely important, because social media plays such a large role in how people think. Really a lot of big investing mistakes I feel are made on FOMO. I bought crypto because my friend bought it and he made a lot of money. Rather, asset allocation is an important strategy, and an interesting opportunity within debt is locking long term.