India stands out as a stable oasis in today’s polycrisis: Mirae Asset’s Mohanty

How have investment products evolved over time?

Indian investors predominantly stick to a market capitalization-based investment approach; a bulk of it focussed on large, mid, or small-cap stocks. However, the concept of investing in various styles or themes hasn’t gained much traction yet. Themes have demonstrated long-term growth potential in India. Globally, investors prefer thematic and innovative investments over traditional market cap strategies. Some good examples are consumption, healthcare, and financials. Moving forward, we see growth in investing beyond market cap. A futuristic outlook includes themes like manufacturing, which is gaining strength and aligns with India’s growing economic narrative.

How has the concept of idea-driven or thematic investing progressed over time?

Even today, there is a confusion between sectors and themes. Themes are often mistaken for sectors. Sectors are subset of a theme. Themes grow over a period of time and can include various sectors. For instance, our Consumer Fund, launched in 2011, initially focused on FMCG but has since diversified considerably. Pharma, for example, falls under the broader Healthcare theme. What began with just Banks in the 1990s now includes NBFCs, Financials, and Fintech. The key takeaway is that themes expand over time and can serve as long-term investment avenues. Sectors can be cyclical while themes can be secular. The mutual fund industry currently boasts ₹2.92 trillion in thematic funds, signaling growing recognition of this investment approach. We’re confident that India will continue to thrive as a consumption-driven economy.

How has the distribution of assets changed across the three generations—your father, yourself, and your son?

The approach to investing has undergone dramatic changes. In my father’s time, like many salaried individuals, he relied on pensions for his retirement. However, today, only 6% of India’s workforce has pensions, while the rest are in the process of creating their own pension or retirement kitty. The approach to investing earlier was very safety oriented and they were lucky having a fixed income regime that used to offer good returns. However, as India transitioned from fixed income to floating rate, interest rates started coming down and investors started seeking other investment avenues for higher returns. Hence, my investing process started including both debt and equity. But my son’s generation is very different. They have easy information due to the internet, their economic status is superior and hence their risk-taking ability will be different. So, I believe, their approach to investing and choosing products may not have any correlation to my father and I. Their product needs may not have any correlation with what we used to invest in.

In the equities versus fixed income debate, who wins?

Fixed income (debt) and equity are two very important financial asset classes serving different risk levels for investors. While debt aims at providing stable returns and higher safety, equity strives to deliver higher returns with higher risk over a period of time. In an economy that is going through a growth phase like India, the prospects of equity on a longer time horizon remain attractive.

Depending on the risk profile of the investor, diversification across asset classes is essential. Not allocating to equities could result in missed opportunities, though there may also be times when losses occur.

During periods of prolonged underperformance in equities, the role of assets like debt and gold becomes apparent. For instance, gold historically has shown resilience during such times, serving as a hedge against market volatility.

Investing involves navigating the market’s ups and downs. Equities offer growth, debt provides stability, and gold offers security during uncertain times. The key is to create a balanced asset allocation that aligns with your risk tolerance and investment goals.

So, have escalating tensions in the Middle East and worries about inflation in the US remaining elevated for longer, prompted foreign investors to turn their attention to India?

In today’s ‘polycrisis’, India stands out as a stable oasis from growth, inflation, liquidity and policy perspective. Unlike the US, where even with a strong GDP, certain cyclical sectors like real estate and credit are struggling, India’s capex cycle is gaining momentum, indicating a broader economic recovery. While headline inflation in India is slightly elevated, it remains within the Reserve Bank of India’s range, presenting a lesser concern compared to Western countries. Moreover, India’s focus on manufacturing and infrastructure is evident in its policy priorities, promising rich dividends. Despite global liquidity challenges, India’s interest rates are relatively stable, with the bond inclusion further bolstering this trend. Given these notable differences, India naturally becomes an attractive destination for both global and domestic investors.

How does India fare in the emerging market landscape?

India is clearly one of the best, given its demographics, low debt and strong policy environment. India now has 100 stocks with market capitalization above $10 billion, near China which has 124 large-cap members of the CSI 300 index. The number of stocks with over $10 billion cap in India is about 4-5 times the number in South Korea and Taiwan, underscoring the rising heft of India among emerging markets. Before the start of the pandemic in 2019, India had only 30 stocks with market cap above $10 billion, largely in line with other emerging markets with the exception of China.

What advice do you offer to today’s new-age investors?

First and foremost, there must be a recognition of the need for investing. If one invests with a purpose, then creating realistic portfolios that will lead to realizing life goals makes investing a tangible process. In today’s world of rising consumption and lifestyle change, the importance of money has grown substantially and hence one should begin investing as soon as possible.