'Strategic sector rotations, momentum growth present great opportunities for investors': Shiv Kumar Goel of Bonanza Group

Equity markets are hovering near record high levels and many market watchers are raising concerns over current high valuations of Indian equities, how can investors grow their wealth and manage risks in the market? In a conversation with Business Today, Shiv Kumar Goel, Director of Bonanza Group shared his thoughts on investment ideas, impact of the US elections on markets, expectations from FIIs, risk management, investment in gold and silver at current levels, and more. Edited excerpts:

With over 30 years in India’s investment sector, how did Bonanza navigate challenges like the 2008 financial crisis and Covid-19, and what advice do you have for the future?

During the 2008 financial crisis and Covid-19, Bonanza focussed on clear communication and transparency, ensuring that our clients received timely updates and guidance regarding market conditions. Besides, we tried educating clients about market volatility, urging long-term investment and avoiding panic selling.

We used technology to ensure seamless trading, enabling remote portfolio management. Going forward, we advise maintaining a diversified portfolio, investing regularly to benefit from rupee cost averaging, and focusing on high-quality stocks. Staying informed and calm is key, as historically we have seen that market has recovered over the time. This proactive approach helps us build trust and resilience among investors.

Equity markets are hovering at their record high levels. Where do you think HNI and UHNIs should allocate their money?

HNIs and UHNIs can focus on large cap companies with strong fundamentals and consistent performance. These companies offer lower risk and steady growth potential, making it suitable for those looking to preserve capital while benefiting from market uptrend. Mid-cap stocks present an attractive opportunity for higher growth potential as these companies often have more room for expansion compared to their larger counterparts, albeit with increased volatility.

We advise HNIs and UHNIs to carefully select mid-cap stocks based on robust financial health and growth prospects to capitalise on this segment. Also, focussing on sectors which are benefitting from government’s Budget allocation, like infrastructure, railways, defence, etc. can optimise returns from market. Additionally, they should explore Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs), which have experienced impressive growth rates and cater specifically to HNIs, allowing for tailored investment strategies. We also advice regular portfolio monitoring and rebalancing are essential to mitigate risks associated with market volatility while optimising returns.

Should investors add gold and silver in their portfolio at current levels? Why and how much?

Post the drastic cut in customs duty, the gold imports have been at a record high of USD 10.06 bn in August with the ongoing festive demand. The prices of gold are at steady levels as the market seen 50 bps expected rate cut after a wait of more than four months. Silver prices have also surged to a new high, touching Rs 92,400 per kg for the first time since the duty cut. The expected rate cut by the Federal Reserve on September 18 may further push up the prices of the industrial metal, which is widely used in solar panels, electronics and electric vehicles.

If an investor wishes to add these to their portfolio, a wise decision would be to wait for the prices to cool down and then add them. Given the upcoming festivities, the prices are unlikely to slip in the near term as the domestic demand will keep the prices propped up. Although the short-term volatility in both gold and silver prices persists and is very much anticipated, the long-term prospects remain robust. So, one can add these at stable levels.

How one should invest Rs 50 lakh in this market to generate superlative returns in the next 2-3 years?

For an investor with Rs 50 lakhs to invest over the next 2-3 years, a well-diversified portfolio focussing on sectors benefiting from the government’s Budget allocation can offer superlative return. The infrastructure sector, which received the highest allocation of Rs 11.11 lakh crore in the recent Budget, stands out as a strong opportunity. A significant portion of the investment can be directed towards stocks related to EPC (Engineering, Procurement, and Construction) in key infrastructure areas like roads, railways, ports, and airports. These segments are set to benefit from the government’s push to boost infrastructure development. Additionally, capital goods and materials used in these projects should also see rising demand as infrastructure spending grows.

Investing in companies that manufacture equipment and materials for these projects can provide good returns. To further diversify and reduce risk, a smaller proportion (around 10-15%) can be allocated to stable sectors like FMCG or healthcare. These sectors tend to be less volatile and are not directly linked to government capital expenditure, providing a safety in case of market fluctuations. This balanced approach allows the investor to tap into the growth potential of infrastructure while maintaining stability with defensive sectors, ensuring a more secure investment strategy and generating superlative returns.

What could be the possible impact of the US elections on global and Indian markets?

The upcoming US presidential election could impact global markets, including India. A Trump win may strengthen the US dollar, benefiting Indian exporters but raising import costs, especially for oil, which could drive inflation. A Harris win would stabilise trade relations, offering a more predictable environment for Indian businesses. Previously, US elections have influenced market volatility, like post 2016 election, we saw immediate declines in Indian markets due to uncertainties surrounding Trump's trade policies whereas in 2020, Biden's win met with optimism, resulting in rally in Indian market, but Indian markets are now less sensitive due to strong domestic fundamentals and DII inflows. However, sectors like technology and pharmaceuticals, reliant on US demand, may still be affected by shifts in US trade, immigration, and healthcare policies.

Your expectations from FIIs? Can they sell aggressively ahead of US elections?

FII behaviour is cautiously optimistic, with USD 3.3 billion invested in Indian stocks in September 2024, reflecting confidence in India’s stability and growth. Key drivers include political stability, strong corporate earnings, and US Federal Reserve interest rate reduction. However, as the US elections approach, market volatility may rise, leading to profit-booking by FIIs.

Large-cap stocks in banking, IT, engineering, and pharmaceuticals remain favoured for stability. The Fed’s upcoming decisions could boost inflows, but any unfavourable developments might trigger short-term selling. Overall, India’s solid fundamentals should continue attracting FII despite near-term global uncertainties.

Amid global geopolitical tensions and market volatility, how has Bonanza adapted its investment strategies to protect client portfolios? Can you share examples of asset reallocation or risk management approaches used?

Recent global tensions have created significant market challenges. Despite forecasting, the full impact of events like the Iran-Israel conflict disrupting oil or be it Russia-Ukraine war is difficult to predict. At Bonanza, we’ve made quick decisions to mitigate risks. We focus on large-cap stocks, as in times of such crisis, large caps usually become a safe bunker to minimise the downside arising out of such headwinds. Then in terms of sectors, we focus on defensive sectors like FMCG and pharma. By making minor portfolio adjustments, we aim to reduce potential downsides during turbulent times.

What are your expectations from the Indian equity and overall economy going ahead?

The near-term outlook for Indian equity markets remains promising, bearing in mind strong macroeconomic fundamentals and strategic government initiatives. We expect that India’s healthy balance sheet, stable banking system and lower reliance on FIIs has positioned Indian market to weather global uncertainties effectively. The anticipated GDP growth of approximately 6.1% over the next five years further solidifies India’s trajectory towards becoming the world’s third-largest economy by 2027.

There are more sectors such as IT, FMCG and manufacturing, which are set to do well with policies like ‘Make in India’ and Production-Linked Incentives (PLI) which encourage domestic production across various industries. Furthermore, the ongoing capex cycle and increasing domestic consumption are likely to support earnings growth, particularly in small and mid-cap stocks, which may outperform their larger counterparts as the manufacturing sector expands. Overall, while markets are expected to be volatile, strategic sector rotations and momentum growth present great opportunities for investors in Indian equities.