How should one invest Rs 50 lakh in this market to generate superlative returns in the next 2-3 years? Anil Rego of Right Horizons PMS explains
The Founder and Fund Manager at Right Horizons PMS, shared his insights on current market dynamics, the likely impact of the rate cuts and US elections on markets, which sectors are still attractive, investment strategies, and more.
- Sep 13, 2024,
- Updated Sep 13, 2024 5:18 PM IST
Indian stock markets are witnessing a strong rally in 2024. The Sensex has gained 15% this year so far and is currently trading near its all-time highs. On the other hand, BSE Mid Cap and BSE Small Cap both indices have surged nearly 33% in 2024. While a bull market is an ideal scenario for market investors they are faced with a few questions, such as where should we invest now amid this strong rally, In which sectors we can find better valuations and good returns? In an interaction with Business Today, Anil Rego, Founder and Fund Manager at Right Horizons PMS, shared his insights on current market dynamics, the likely impact of the rate cuts and US elections on markets, FII investments, which sectors are still looking attractive, investment strategies and more. Edited excerpts:
Currently, the equity market is near record highs; Where the HNIs and UHNIs are investing their money now?
As growth remains resilient, we believe GDP growth is largely in sync with the long-term trend. India's strong economic growth and political stability are key factors driving this market rally. We believe this growth is driven by sustained domestic consumption, increased infrastructure spending, and increased corporate profitability. Investor confidence is likely to be boosted by the idea that a relatively stable economy focused on key structural forces will create new opportunities across the horizon. We believe the balance between macro stability and growth reaffirms investors about the continued stability creating a foundation for growth. The achievement of crossing the mark of 25,000 on the Nifty 50 Index denotes that it is evidence of good corporate profits, stable political conditions, and consistent economic growth. We are witnessing HNI & UHNI’s remaining focused on key trends investing in building blocks of growth in businesses within sectors available at reasonable valuations.
What are your expectations from foreign investors ahead of the rate cuts and US elections?
India is viewed as a relative beneficiary, thanks to its growth model driven by domestic demand, advantages from lower commodity prices, shifts in supply chains, and favourable foreign policy dynamics. India's strong economic standing is expected to draw greater interest from investors. A rate cut in September could direct more investments into emerging markets, with India likely to gain significantly since the growth of the domestic economy is structurally driven by sustained domestic consumption, increased infrastructure spending, and supportive government policies. Following a robust 2023, foreign portfolio investor inflows into Indian equities were relatively modest in the first half of 2024. FPI inflows are expected to rise in the future due to the inclusion of Indian government bonds in the JP Morgan Global Bond Indices.
PSU stocks outperformed the market last year; do you think the momentum to continue for the next 1-2 years?
Investor sentiment towards PSU stocks can fluctuate often influenced by government policies and decisions. PSUs are close to historical highs while their premiums to the broader market are also at historical highs after sharp rallies. Since we believe in long-term earnings growth is the likely driver of price any slowdown in earnings will likely impact the PSU segment especially due to the re-rating observed. Slowing credit growth is likely to impact more for PSU banks, given their relatively higher leverage and also increased risk of credit costs. We believe that these valuations in PSUs will sustain the capex cycle needs to sustain if not we could witness price corrections.
Which sectors are still looking attractive in this bull market?
The corporate earnings for the first quarter of fiscal year 2025 met expectations, with Auto & BFSI driving the overall growth and further aided by contributions from Healthcare, Real Estate, Capital Goods, and Metals. We recommend remaining focused on key trends and investing in building blocks of growth we are bullish on financials, wealth management, building materials, and the manufacturing segment.
How should one invest Rs 50 lakh in this market to generate superlative returns in the next 2-3 years?
The markets touched all-time highs yesterday and we believe valuations are reasonable for large-caps and selective small-caps and mid-caps so investing in a staggered manner is recommended in the current market. For superlative returns in 2-3 years requires a balanced approach, understanding one’s risk tolerance, and market conditions are necessary. We believe quality companies with sustainable moats that can compound earnings 20%+ consistently in sector with tailwinds are expected to do better over the next 3 to 4 years provided these stocks are purchased at reasonable prices while pricing in the future growth.
How can investors diversify their portfolios ahead of the US elections?
India and the US maintain strong economic and strategic ties that are unlikely to be affected by election results. Additionally, the US views India as a key strategic counterbalance to China. As a large economy driven primarily by domestic demand, India is expected to experience limited economic impact from slower US growth.
We believe India is well-positioned to manage volatility, supported by its substantial foreign exchange reserves, a stable growth-moderate inflation balance, fiscal discipline, and an ongoing commitment to reforms. We recommend holding quality names in sectors with tailwinds with consistent earnings growth since these companies are likely to do relatively better. Further, any volatility in such names can be looked at as increasing exposure as valuations are likely to be reasonable.
What are your expectations from the Indian Equity and overall economy going ahead?
GDP growth has been resilient with GDP growth for Q1 at 6.7%, Nominal GDP grew by 9.7% YoY in 1QFY25 vs. 8.5% YoY in 1QFY24. The growth in the domestic economy is structurally driven by sustained domestic consumption, increased infrastructure spending, and supportive government policies. Rural recovery is expected to be gradual from the second half of Y25 and also, we expect a pick-up in government capex. Rate cuts domestically are expected in the last quarter of FY25 which should aid the growth.
Indian stock markets are witnessing a strong rally in 2024. The Sensex has gained 15% this year so far and is currently trading near its all-time highs. On the other hand, BSE Mid Cap and BSE Small Cap both indices have surged nearly 33% in 2024. While a bull market is an ideal scenario for market investors they are faced with a few questions, such as where should we invest now amid this strong rally, In which sectors we can find better valuations and good returns? In an interaction with Business Today, Anil Rego, Founder and Fund Manager at Right Horizons PMS, shared his insights on current market dynamics, the likely impact of the rate cuts and US elections on markets, FII investments, which sectors are still looking attractive, investment strategies and more. Edited excerpts:
Currently, the equity market is near record highs; Where the HNIs and UHNIs are investing their money now?
As growth remains resilient, we believe GDP growth is largely in sync with the long-term trend. India's strong economic growth and political stability are key factors driving this market rally. We believe this growth is driven by sustained domestic consumption, increased infrastructure spending, and increased corporate profitability. Investor confidence is likely to be boosted by the idea that a relatively stable economy focused on key structural forces will create new opportunities across the horizon. We believe the balance between macro stability and growth reaffirms investors about the continued stability creating a foundation for growth. The achievement of crossing the mark of 25,000 on the Nifty 50 Index denotes that it is evidence of good corporate profits, stable political conditions, and consistent economic growth. We are witnessing HNI & UHNI’s remaining focused on key trends investing in building blocks of growth in businesses within sectors available at reasonable valuations.
What are your expectations from foreign investors ahead of the rate cuts and US elections?
India is viewed as a relative beneficiary, thanks to its growth model driven by domestic demand, advantages from lower commodity prices, shifts in supply chains, and favourable foreign policy dynamics. India's strong economic standing is expected to draw greater interest from investors. A rate cut in September could direct more investments into emerging markets, with India likely to gain significantly since the growth of the domestic economy is structurally driven by sustained domestic consumption, increased infrastructure spending, and supportive government policies. Following a robust 2023, foreign portfolio investor inflows into Indian equities were relatively modest in the first half of 2024. FPI inflows are expected to rise in the future due to the inclusion of Indian government bonds in the JP Morgan Global Bond Indices.
PSU stocks outperformed the market last year; do you think the momentum to continue for the next 1-2 years?
Investor sentiment towards PSU stocks can fluctuate often influenced by government policies and decisions. PSUs are close to historical highs while their premiums to the broader market are also at historical highs after sharp rallies. Since we believe in long-term earnings growth is the likely driver of price any slowdown in earnings will likely impact the PSU segment especially due to the re-rating observed. Slowing credit growth is likely to impact more for PSU banks, given their relatively higher leverage and also increased risk of credit costs. We believe that these valuations in PSUs will sustain the capex cycle needs to sustain if not we could witness price corrections.
Which sectors are still looking attractive in this bull market?
The corporate earnings for the first quarter of fiscal year 2025 met expectations, with Auto & BFSI driving the overall growth and further aided by contributions from Healthcare, Real Estate, Capital Goods, and Metals. We recommend remaining focused on key trends and investing in building blocks of growth we are bullish on financials, wealth management, building materials, and the manufacturing segment.
How should one invest Rs 50 lakh in this market to generate superlative returns in the next 2-3 years?
The markets touched all-time highs yesterday and we believe valuations are reasonable for large-caps and selective small-caps and mid-caps so investing in a staggered manner is recommended in the current market. For superlative returns in 2-3 years requires a balanced approach, understanding one’s risk tolerance, and market conditions are necessary. We believe quality companies with sustainable moats that can compound earnings 20%+ consistently in sector with tailwinds are expected to do better over the next 3 to 4 years provided these stocks are purchased at reasonable prices while pricing in the future growth.
How can investors diversify their portfolios ahead of the US elections?
India and the US maintain strong economic and strategic ties that are unlikely to be affected by election results. Additionally, the US views India as a key strategic counterbalance to China. As a large economy driven primarily by domestic demand, India is expected to experience limited economic impact from slower US growth.
We believe India is well-positioned to manage volatility, supported by its substantial foreign exchange reserves, a stable growth-moderate inflation balance, fiscal discipline, and an ongoing commitment to reforms. We recommend holding quality names in sectors with tailwinds with consistent earnings growth since these companies are likely to do relatively better. Further, any volatility in such names can be looked at as increasing exposure as valuations are likely to be reasonable.
What are your expectations from the Indian Equity and overall economy going ahead?
GDP growth has been resilient with GDP growth for Q1 at 6.7%, Nominal GDP grew by 9.7% YoY in 1QFY25 vs. 8.5% YoY in 1QFY24. The growth in the domestic economy is structurally driven by sustained domestic consumption, increased infrastructure spending, and supportive government policies. Rural recovery is expected to be gradual from the second half of Y25 and also, we expect a pick-up in government capex. Rate cuts domestically are expected in the last quarter of FY25 which should aid the growth.