In conversation with Mihir Vora, Chief Investment Officer at Trust MF

Growth-wise and geopolitically, India’s position is as visible and strong as it has ever been, which ensures that we remain a preferred destination for foreign investors, asserts Mihir Vora, Chief Investment Officer, Trust Mutual Fund.

The rising interest rate scenario in the US has been a topic of consideration. How do you see the rate rise trajectory from here on for both India and the US? Any specific factors that investors should be mindful of in the coming months? 

The year 2023 is ending with an almost Goldilocks scenario for India versus the rest of the world.

Inflation and inflation expectations are down a lot from the peak seen in the past 18 months since the beginning of the Ukraine war. GDP growth forecasts for most developed countries and China have been reduced in the past few months. Even the Israel-Palestine issue has failed to raise oil prices as there are concerns over a global slowdown. However, the slowdown is expected to be moderate and there are no fears of a sharp recession or a disruption.

The global bond markets are reflecting these developments. Yields have moved down sharply in the past few weeks as growth prospects have weakened, and inflation is expected to moderate. This paves the way for rate cuts by global central banks in late 2024, and the Reserve Bank of India is likely to follow suit.

In contrast with the global situation, growth expectations for India remain stable, and we are likely to be the fastest-growing large economy in the world in 2024. This year has seen excellent growth in corporate earnings and the market expects another good year in FY25, with earnings growth of 15 per cent for Nifty 50 companies.

Downward-trending global interest rates, moderating global growth and stable domestic growth are a good Goldilocks situation for India. All in all, the India story is intact, and we approach 2024 with continued optimism and excitement. Consumption, while still K-shaped, is holding up and investments are likely to pick up as the private sector reaches high capacity utilisation.

Trust Mutual Fund has been known for its Debt Funds. What motivated the decision to enter the equity space, and how do you plan to differentiate in the competitive equity market? 

Introduction of equity funds will be one more step in TRUST’s efforts to offer the complete gamut of products and services for customers to choose from. We believe in a differentiated investment approach and have proved the same when we launched our fixed-income funds with many unique features like proprietary indices, a limited-active approach, and a tie-up with CRISIL. We want to be consistent in what we say and what we do.

Investing is ultimately an act of wisdom, not only intellect and intelligence. For equities, our edge is the very differentiated insights that we bring to the table when we analyse companies and stocks, and these are the core of our unique approach. Our philosophy has focus and discipline as key pillars. As a house, we have a wealth of expertise and deep understanding of all asset classes which we believe gives us a unique investing DNA. We do not believe in proliferation and will offer distinct true-to-label products.

How do you analyse the current trends in the Nifty and broader market indices? Any specific trends or patterns that investors should be aware of? 

Valuations of Large-Cap stocks are still reasonable once we adjust for earnings growth. Some mid and Small-Cap stocks may have run a bit too far, but that need not mean that the whole segment is expensive. The mid and small-cap space will remain a stock pickers’ canvas as most of the new and exciting sectors, where we expect high growth are represented only in the mid and small-caps.

I expect the Indian economy to do better than the rest of the world. So, the preferred sectors are domestic-focused. Fundamentally, I believe that we are on the cusp of an investments-led growth phase in manufacturing, infrastructure creation and real estate. So capital goods, construction, real estate, defence manufacturing, railway investments etc. are the sub-sectors which should see significant momentum in the next few years.

Apart from these physical-asset-creating sectors, financials look good. Banking and financials are the largest sectors, and these are expected to drive earnings growth as they are in a sweet spot – credit growth is picking up while banks/NBFCs have cleaned up their balance sheets and shored up capital. The recent RBI directive to increase the risk weights on unsecured loans however can be a short-term dampener. The hope is that now corporate sector demand for loans will pick up as the bulk of the increase in loans has been in retail (secured as well as unsecured) lending.

Consumption, especially in the lower end has not picked up satisfactorily yet and stocks have underperformed due to this. If this picks up then there could be interesting plays in FMCG, auto (2-wheelers) etc.

Growth-wise and geopolitically, India’s position is as visible and strong as it has ever been. This should ensure that India remains a preferred destination for foreign investors (foreign direct investments as well as portfolio investors) and the case for India has never been relatively better for global investors. Domestic investors continue to pour money into equities at an accelerating pace - directly as well as via mutual funds, insurance premiums, the National Pension Scheme as well and EPFO money.

How does the September quarter earnings season align with expectations? And considering the first-half earnings of FY24, what is your perspective on the outlook for the second half of FY24? 

The earnings season has been fine so far and overall, earnings have been as per expectations with a growth of around 18-20 per cent. The IT sector is slowing down. Banks’ credit growth is good, some banks have shown some margin compression but asset quality remains good. Commodity companies have shown mixed results and FMCG continues to be weak. We do not see significant upgrades or downgrades to Nifty earnings estimates after all the results are out.

Going forward, we expect 15 per cent earnings growth for FY25.

If an investor wants to invest Rs 1 lakh in mutual funds, what will be your investment advice?  

Asset allocation is a function of the individual’s unique situation, so it is not right to recommend a number or ‘ideal’ mix. However, let’s look at equities versus fixed-income. Three years ago, when we had equities crashing due to COVID, valuations had become too attractive. Also, interest rates were cut to record-low levels. So, equities were by far the best bet.

Now equities valuations have normalised while fixed income rates are at high levels. So, relatively fixed income has also become attractive. Hence, while equities remain attractive, one can also look at increasing incremental allocation to fixed income.

Globally, we are beginning to see signs of the US Dollar depreciation, and this is potentially positive for gold. So, some small diversification into gold can also be considered as a portfolio strategy.