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ETMarkets Fund Manager Talk: In the run-up to elections, this fund manager shares a few investment strategies

Mumbai, Jan 18, 2024

While equities are steadily moving up and hitting new records, volatility could set in closer to the general elections. In such a scenario, Sanctum Wealth is recommending clients to shift exposure to largecaps and invest in sectors that are in a structural uptrend.

“Our in-house recommendation to clients is to move towards large-cap universe as valuation on mid and small caps are looking a bit stretched, and stay invested in sectors that are in structural uptrends. Those are the sectors that create long-term wealth for passive investors,” says Hemang Kapasi, director, fund manager and principal officer PMS at Sanctum Wealth.

Those investors that made good returns from the recent rally in the market, Kapasi recommends them to diversify and move into sectors like healthcare and consumption. Edited excerpts from an interview with ETMarkets:

How do you expect India to fare in 2024 versus its EM peers given its quite event-heavy?

Hemang Kapasi:Economically, India continues to be the bright spot amongst the emerging markets economies. It is the fastest growing large economy, reforming and building at a brisk pace, complemented by a stable government.

The market is assuming that the political landscape wouldn’t change in the country, especially after the results in the recent assembly polls. This will further accelerate the reforms process.

If we see other EM countries like Taiwan, South Korea and Brazil, they are to a certain extent export-oriented economies which are largely dependent on developed markets to perform and consume better.

However, financial markets are a different game altogether. They are driven by a lot of other factors in the interim.

Given the US Fed’s pivot of reducing interest rates recently, there could be huge liquidity flowing into emerging markets in 2024 and most of the emerging markets would be the beneficiary of this.

Given that India has already seen a decent surge in the financial markets, we believe that India would take a little breather vis-à-vis other emerging markets for fundamentals to catch up before continuing their advance.

According to you, what could the interim budget next month look like?

Hemang Kapasi:There aren’t too many big expectations from the budget at this point. But infrastructure and power sector related capex announcements are expected to continue.

Given this is the last budget for the current term, there could be a few populist rural centric announcements to appease voters.

DII inflows were pretty strong and almost in line with FII inflows in 2023. Do you see this trend continuing in 2024?

Hemang Kapasi:DIIs have so far cushioned the impact of FII outflows in the last year and have been a major driver of the current rally.

With SIP book growing to an all-time high of Rs.17000 crore in the last month, domestic investors have shown phenomenal trust on the Indian markets.

However, FIIs, despite being one of the bigger shareholders, currently have their lowest holding in recent times.

With global monetary tightening nearing end after US Fed signalling cut in interest rates, there are reasons to believe that FIIs would be a larger contributor to flows over the next one year.

Which are the top 5 sectors that you will be betting on in 2024?

Hemang Kapasi:As government spending is expected to be a major driver of economic activity and private capex is catching up to it, all capex-related sectors shall continue to do well.

The sector will also benefit from several PLI schemes that the government has launched in the last couple of years.

Another sector that may continue to outperform is real estate, which would benefit a multitude of industries. As the conditions are ripe for leverage to grow, financials shall also be a major beneficiary of economic growth.

Healthcare is another sector that is on a structural uptrend led by improved supply, higher incomes, and higher insurance penetration

Lastly, consumption, especially premium consumption, may continue to do good because of rising aspirations and easy availability of finance.

Which themes in India are likely to do well no matter what may be the outcome of the general elections?

Hemang Kapasi:Healthcare is one theme that wouldn’t be impacted much by the election outcome. Export-oriented themes also may not be too impacted by the same.

However, one must choose well in the export theme as it is largely a stock pickers game because barring IT, which is a standard export from India, every other export opportunity is product specific like chemicals and pharma.

After a strong run in the midcaps and smallcaps, do you think flows could move to largecaps in the near to medium term? As stated earlier, FIIs could be a bigger factor to drive stock returns in the coming year and as FIIs prefer large liquid names, largecaps shall benefit from the phenomenon.

There can also be a general rotation from mid- and smallcaps to largecaps which is quite common after a major outperformance by small and mid-caps.

What kind of investment strategy would you advise clients in the run-up to the event-heavy 2024?

Hemang Kapasi:Our in-house recommendation to clients is to move towards large-cap universe as valuation on mid and small caps are looking a bit stretched, and stay invested in sectors that are in structural uptrends. Those are the sectors that create long-term wealth for passive investors.

Whoever has made good returns from the recent pop in value and PSUs may consider diversifying a little bit by moving into sectors like healthcare and consumption.

For someone who has missed the rally, it’s not prudent to chase the highflyers and rather look for solid companies that have not participated in the current rally and belong to an industry that doesn’t get impacted too much by election outcomes.

For more information, please visit www.sanctumwealth.com

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