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Citywire Asia, Dec 14, 2020

Sanctum Wealth Management investment boss Roopali Prabhu gives us an overview of the fund market in India.

Tell us about your firm and role.

Sanctum Wealth Management was founded as a result of a management buyout of private banking business Royal Bank of Scotland (RBS) India in 2015. Sanctum has grown to a mid-sized private wealth management firm catering to end-to-end private wealth management solutions for high-net-worth individuals (HNIs). The solutions offered by Sanctum include third-party investment products, in-house discretionary and non-discretionary portfolio strategies, equity broking, stock advice, strategic solutions, wealth planning and real estate advice, among others.

I am the chief investment officer at Sanctum and am responsible for our investment platform including formulating our investment outlook and managing our model asset allocation portfolios. I work with a team to develop our core discretionary strategies, investment products, broking platform and strategic solutions.

What product gaps do you see in the fund market in India?

Indian capital markets are still evolving, so the industry is working with a limited set of instruments. We are yet to achieve market depth in instruments such as single-stock options, real estate investment trusts, infrastructure investment trusts and structured products. This imposes limitations on product innovation.

However, managers are reasonably quick to integrate new instruments in their fund construct as constraints around regulations, liquidity and price discovery ease. Passive investing is gaining a foothold, and there are new products available in this space, such as smart beta, thematic, international equities and debt exchange-traded funds.

There is tremendous scope to grow as investors understand and experience the relevance of these products in their portfolios. Similarly, there is a new emergence of alternative products with varied investment objectives and strategies. There is scope for innovation in this space as markets develop further.

We have been advocates of international diversification for a long time. India represents only 3% of the global market cap so local investors miss out on investing in some world-class companies and at times entire sectors by maintaining a domestic portfolio.

Lower correlation with domestic equities also helps balancing risk. Initially, there was not much interest in offshore investments, but it has been gathering momentum in the past months. Assets under management of international feeder funds in India have doubled since the meltdown in March, albeit on a small scale.

What investment themes are you watching?

Even with a Covid-19 vaccine, we think economic recovery will remain uneven. Some sectors such as IT, pharmaceuticals and specialty chemicals are experiencing tailwinds, whereas others such as entertainment and offline retail have been hit disproportionately hard and would have a longer recovery period. This resonates with trends internationally as well. We are most interested in industry leaders of these sectors that are benefitting from structural and tactical tailwinds. Our preferred themes continue to be the same since the onset of the pandemic: resilience and the strong getting stronger. Recently, the buzzword has been ‘quality’ – for us, ‘quality’ means hygiene rather than a theme.

We continue to be constructive on gold and overweight in all our model portfolios, despite gold being sideways recently. We have been exploring the alternative investment range extensively and we like the warehousing development space for its superior risk-adjusted return potential.

Are the US-China trade tensions a concern among clients?

Not really. Investors know the trade tensions can cause market volatility, but it also creates structural opportunity in some sectors and industries in India, and our positions in gold should smooth out volatility. In fact, we often get queries around such opportunities.

Which asset classes are the most challenging?

In 2019, it was fixed income. But this year, tactical asset allocation adjustments are proving more challenging than researching a single asset class. We had never navigated so many uncharted waters simultaneously – economies at a standstill, record quantum of negative yielding debt, massive global and local liquidity infusion, and other local factors.

How big is your product shelf and how many products are in your recommended list?

We have almost all the products required by our clients, including global assets both in INR and foreign currency. Our open-architecture philosophy and team size allows us to offer a wide range of managers and products. We also curate some of the products in-house through our asset management team.

While we constantly explore and perform due diligence on a lot of products, we are very selective about what comes to the recommendation list. We do not operate like a supermarket – we bring well-researched, high-conviction ideas to our clients.