Srikanth Subramanian, BFSI News, ET BFSI
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What is your view on the equity market at current levels, and what are you advising your clients now?
Our position on equities is neutral, but we are not shying away from taking bets. Within equities, we are advising clients to allocate some money to international stocks and passive investments. Our views shared here should not be construed as investment advice. It is a general broad-based view based on the current environment. Specific advice to customers on asset allocation depends on risk profiling of individual customers and the suitability of products to them.
What investment strategy did you follow in the last 18-20 months?
At Kotak Investment Advisors Limited (KIAL), which runs our Private Wealth – Investment Advisory practice, we have kept our positions fairly neutral, fairly sector agnostic, and theme agnostic; instead, we took some larger macro calls, which has held us in good stead. KIAL took three big calls overall as a firm. The first call we took was to diversify into international markets. The regulator has progressively eased Asset Management Company (AMC) limits into overseas funds, and now it is set at US$1 billion per mutual fund house.
We have seen huge interest from investors to take exposure to US technology stocks and other international markets. KIAL was one of the first houses to recommend to investors to diversify their portfolio to global equities. Currently, we have a call for 20% exposure to international markets, and we will continue to hold this approach for some time.
The other big call that we made fairly early on was on technology-enabled and new-age companies. We have an almost 15% allocation within the equities allocation towards some progressive new-age tech companies. The third and final macro call, which we are seeing unfolding big time, is entering ETFs or passive funds in an investor’s portfolio.
What’s the rationale behind investing in the international market?
Our model portfolio has a 20% allocation of an investor’s equity portfolio to international investments, which can be split between the US (two-thirds), China, and Europe (one-thirds). The Indian markets have performed exceptionally well, but if you look at the last ten years, US equity returns have outperformed the Indian market. Over ten years, the Nasdaq index has given returns of 21.4% (in dollar terms) vis-à-vis the Nifty 50 total return of 14.5% in rupee terms. Record-low interest rates and stimulus packages worldwide have pushed global equities to all-time highs during the pandemic.
Do you see an appetite for new ETFs and ESG based investment in India?
Investors are asking whether they should be looking at passive funds or active funds. Our response has always been that it is not one; passive and active strategies complement each other. We are also recommending Smart Beta ETFs such as Low Volatility 30 and Momentum. A combination of these two Smart Beta ETFs can serve investors well. A very efficient platform at a fraction of the cost. While ESG investments are still at a nascent stage in India but picking up. Millennials, professionals, and businesspeople – all client profiles- are interested and enquiring about ESG. While we have a long way to go, at KIAL, we have started initial work on this and can give investors factual information on how their portfolios score on ESG.
After the new regulations, how has Kotak’s advisory business model changed?
The regulations have paved the way for the industry to offer high-quality advice to clients, and the focus is on what is right for you as an investor. For the advisory business, which is run out of Kotak Investment Advisors Limited (KIAL), we are looking at broader trends in what will shape the country in the years to come and using that to offer clients a high quality and differentiated advice. We feel competence and cutting-edge technology will play a pivotal role in giving investors a high-quality advisory experience. Advisory as a practice removes any perceived conflicts, allowing investors to access a wide range of solutions and trends than specific products.
Can you tell us something about the Pre-IPO Fund launched recently?
The supply of good quality companies in the technology space is limited, so we raised a fund to get a more significant share. The pre-IPO fund will mainly invest in technology-enabled companies that are looking to list in the near term. KIAL has already announced the first close and has made a couple of investments as well. We don’t want to raise additional capital just for the sake of raising money. Instead, we will first get a sense of the quality of supply available, and only then will we raise additional demand.
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