India appears to be in a structurally good position. However, there could be some challenges along the way. In an exclusive interview with Livemint, Anish Tawakley, Deputy CIO Equity, ICICI Prudential AMC recommended investing in hybrid categories, including equity savings, balance advantage, aggressive hybrid, and multi-asset. He remained positive on the auto, pharma, and telecom sectors, and suggested now is a good time to enter the IT sector, with cloud migration and penetration likely becoming significant growth drivers in the future. He also recommended investing in small-cap funds via SIPs for long-term wealth creation, with ICICI Pru Small cap fund offering a good avenue.
How to tweak your portfolio for the short term?
India seems to be at the cusp of an up-cycle. However, due to global macros, and the geopolitical environment, there could be some challenges along the way. Therefore, intermittent volatility should not be ruled out. Hence, we recommend investors invest a lump sum into hybrid categories like equity savings, balance advantage, aggressive hybrid, and multi-asset. Since hybrid funds invest in two or more asset classes, investor outcomes could be more favourable rather than investing in a single asset class.
Which sector is expected to outperform in the medium term?
We are positive on auto, pharma, and telecom. We believe the outperformance in autos is likely to continue on the back of extending sales upcycles and margin expansion. EV sales have seen a significant uptick on the back of affordability, availability, and acceptance. When it comes to pharma, we continue to remain positive on companies having strong franchise networks in the domestic market. The benefits of price hikes in India, currency depreciation, and gradual normalisation of the supply chain may start benefitting the Indian pharma industry at a broader level.
Telecom is another sector we believe is on the cusp of a multi-year upcycle driven by changing usage behavior, consolidating industry structure, 5G rollout momentum, realisation of spectrum usage charge savings, etc., thereby forming a base for a positive outlook.
Will IT continue to be a laggard or should we look at accumulating IT stocks?
The near-term challenge for the IT sector is that growth will be moderated. However, going forward, cloud migration and cloud penetration are likely to be significant growth drivers. Future increases in the proportion of junior personnel, increased outsourcing, better utilisation, salary rationalisation, price increases, and INR devaluation are all potential levers for increasing margins.
From an investment perspective, it is a good time to enter the IT sector with a 2-4-year timeframe. Given that there will be near-term volatility it is advisable to invest through SIPs.
What should be the strategy for small-cap equity MF investors in the market?
Historically, over the long term, small-cap funds have delivered sizeable alpha over longer timeframes. In the case of our fund, the performance largely tends to follow the earnings and cash flow growth of investee companies. We believe that a small-cap portfolio comprising companies with good medium to long-term earnings and cash flow growth prospects coupled with business longevity, which we believe will likely lead to wealth creation in the long term. One of the preferred ways to take exposure to small caps is via SIP. For investors looking to invest in a small fund with better risk-reward metrics, ICICI Pru Small cap fund offers a good avenue.
Updated: 26 Jun 2023, 12:22 PM IST