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Updated on June 27, 2022 1:18 am

ETMarkets Fund Manager Talk : India seeing structural trend in financialization of savings: Krishnan VR, Marcellus Capital


India is seeing a structural trend in the financialization of savings, wherein households are investing more in financial assets over real estate and gold, says Krishnan VR, a WealthBasket Curator and Fund Manager at Marcellus Capital Partners LLP.

“That trend should keep retail flows buoyant, barring a catastrophic event, resulting in share drawdowns in the market, which might spook investors, especially first-time investors,” he told ETMarkets in an interview. Edited excerpts:

How has your WealthBasket performed in 2022?
MeritorQ WealthBasket was launched in October last year. Since inception, the product has delivered 0.6% (excluding any returns from dividends and gross of fees and transaction costs) which is comparable to the benchmark Nifty 500 returns during the same period.

Which are the key parameters/metrics you look at while choosing stocks in your portfolio?
We look for companies with clean accounts based on our forensic screen, low leverage, and consistent profitability.
Our selection criteria favours companies which generate high returns on capital and are currently undervalued. Our valuation measure is based on P/FCF instead of P/E, as we believe a company’s free cash flow generation ability is a better predictor of future returns than post tax earnings.

The start to the New Year has not been good for markets. Given the volatility due to persisting global risks, how should investors approach markets?

Given that equities are meant for long-term savings, our view is that investors shouldn’t worry about market risks and try to time the market. Instead, investors should review and stick to their asset allocation and deploy incremental savings in a systematic way.

Do you foresee a capex-heavy Budget this time in view of the PLI schemes and infrastructure boost planned by the government?
We don’t pay much attention to the Budget as we see that as at best, a statement of accounts. But also, we run a bottom-up approach irrespective of the macro themes or sectors.In the run-up to the Budget, which are the sectors that will see most of the action? Which are the sectors you would recommend getting into?

As said, we are sector agnostic and look to invest in high quality companies with clean accounts, returns on capital greater than cost of capital for long periods of time, strong balance sheets and available at reasonable valuations, irrespective of the theme and sector

Retail inflows remained buoyant in 2022, do you expect the buoyancy to sustain in this year too?
India is seeing a structural trend in the financialization of savings where households are investing more in financial assets over real estate and gold. That trend should keep retail flows buoyant, barring a catastrophic event resulting in share drawdowns in the market, which might spook investors, especially first-time investors.

What kind of diversification in asset allocation would you recommend to your clients in an expected volatile market condition?
We recommend clients articulate their financial goals to their financial planner who can help create an asset allocation plan which is reviewed periodically. Specifically within equities, given high inflation and rising interest rates, we recommend sticking to companies with strong pricing power and strong debt free balance sheets.

Which pockets within the midcap and smallcap segment look attractive to you and why?
Over the last year and a half, several high quality companies in the small and mid-cap space have been beaten down by the market given raw material price inflation. Many of them have strong pricing power and are likely to mitigate the impact in the medium term as they pass on the prices. Furthermore with commodity prices now falling, such companies look very attractive from a long term perspective.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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