Managing Wealth: Look Ahead, Look Wide

CY21 set a record of sorts with almost all asset classes delivering robust returns. The long-term case for investing remains strong for 2022 as well, concerns around valuation notwithstanding.

V. Keshavdev

THE YEAR 2022 has been a bumper one for the rich and ultra-rich who have invested in the private equity space. Stellar public market debut of new-age tech companies has fuelled interest in unlisted equity of promising start-ups. Fortune India’s panel of leading wealth managers — Ashish Gumashta, CEO, Julius Baer Wealth Advisors India; Atinkumar Saha, head, wealth management, Deutsche Bank; Rajesh Saluja, MD and CEO, ASK Wealth Advisors; Sandeep Das, head, private clients [India], Barclays; Yatin Shah, co-founder and joint CEO, IIFL Wealth & Asset Management — offer a lowdown on the best investment options of 2022. The discussion was moderated by V. Keshavdev. Edited excerpts:

After a record run since the March 2020 low, is the party on the Street now coming to an end?

Atinkumar Saha: I don’t think the party is over yet given the expectations around GDP growth, despite the current supply chain constraints. Also, liquidity is not going to dry up as no central bank or government around the world is aggressively looking to bite the interest rate hike bullet. The only area that the market will keenly look at is earnings growth amid the growing spectre of inflation.

Sandeep Das: The long-term case for investing remains very robust for 2022. We expect global GDP growth of 4.5% and India’s growth is going to be much higher. But the wall of worry changes from GDP growth to CPI. So we should be prepared for more volatility amid higher interest rates and inflation. The way ahead would be sticking to appropriate asset allocation strategy and bottom-up stock picking.

Ashish Gumashta: The good news for India is that a new equity cult is emerging, and robust tax collections are likely to result in a pick-up in government spending, Though Q2 saw margin pressures, most clients have started hiking prices, which will be a pass-through to customers. Given that people made money not just in stocks but also in PE and fixed income, one should take some money off the table. So, though we are positive on the markets, one should approach this year with caution and prefer to buy on dips.

Yatin Shah: We see a valuation risk across all asset classes. Till Covid is completely out of the picture, we expect a more accommodative monetary policy, hence, the party could continue for some more time. On the inflation front, there’s been a huge amount of disruption on the supply side. Another trend is the shift in power from institutional to retail investors across asset classes. Today, 70% of NSE volume is retail and 50% of option trading volume is nothing but leverage. So, if there is any event or change in sentiment, we could see some bit of correction. Though the fall won’t be a sharp one, over the long term, India will continue to attract capital.

Rajesh Saluja: In 2019, valuations were higher than what they are today. Since then interest rates have come down and earnings have picked up. So, this market is still sustainable, keeping aside short-term risks. The PE on a trailing basis looks expensive, but based on FY22 estimates of 35% earnings growth, the market is quoting at 25 times. Further, interest rates are not running away in a hurry, so even next year the advantages of deleveraging will play out. Even if we assume 15% earnings growth in FY23, at 21 times earnings, valuation is not expensive.

Are HNIs re-looking at real estate? Is there a preference for direct investment, or through InvITs/REITs?

Saluja: It’s both. On the housing capex side, there is real demand coming in from people who want to improve their quality of life since their incomes have gone up. It is not investment demand but real end-user demand that has changed over the past six to nine months. It’s a cycle — whenever equities surge and interest rates stay low, real estate will see a revival. Besides, the rise of quality developers over the past four years has also made structured debt funds attractive.

Das: Given the weak supply overhang, I see a five-year cycle — with the beginning of end-user demand and later investors entering the fray.

Gumastha: We feel real estate will do well primarily because interest rates are low. When fixed income returns come down, Indians tend to allocate more towards real estate. On the commercial side, things are not exactly clear though a lot of money is flowing in from the likes of CDPQ and the Japanese. But given that employees are still working out of homes, the picture is not clear. But, one has to be cautious since real estate is a very illiquid asset class and there are concerns around the cash component coming back.