What is Schroders’ view on India from an asset allocator point of view? Do you share others’ cautious views?
We’re slightly underweight relative to the benchmark. And that’s because of the fact that we now have other asset classes to invest in.
So it’s more an indication of a little bit of sluggish growth here. Importantly, valuations have probably reached a high point. The IPOs have definitely been a drag on equity markets.
The fact is that many investors are now returning to their usual level of exposure to India, mostly through other products (broader emerging-market or global funds) rather than making direct investments (India-specific investments).
So, at what point would you turn bullish on Indian equities?
There are two things here. We would want to see economic and market performance start to tick up. There are lots of reasons to be hopeful. Domestic consumption hopefully will improve because of the tax and GST changes. The great thing now is that because of the domestic flow into equities, there is almost a floor in the market. But that liquidity is largely being used to absorb the heavy IPO supply rather than pushing up secondary market prices. From an allocation point of view, once GDP growth starts ticking up again and valuations find support, I’d be more constructive on equities. Emerging market funds are seeing renewed interest, and since they naturally allocate to India, some foreign inflows will continue to come through that channel even as India-centric funds have seen outflows. In the medium and long term, India is a one-way bet for most people because of the core fundamentals that underlie the economy.
Coming to your partnership with Axis Mutual Fund, how has the partnership evolved after the front-running scandal?
In relation to the front-running issues, we’ve got to move past that. The facts are it was an isolated instance with an individual and he was removed soon. Whilst Axis hasn’t been implicated, I’m really well aware that the business has continued to improve controls as we all have across the industry. So I think we’ve drawn a line under that and we’re all moving forward and performance is improving in the business.
During the episode or after that, at any point, did you have second thoughts about the partnership, even privately? Well, it’s a bit hard for me to answer that because I’ve only been in the organisation for the last two years. But for the entire period that I have been here, I can tell you there’s been no questions or second-guessing the partnership in the boardroom.
So, have you thought of increasing your stake in Axis Mutual from the current 25%? Have you had any discussions? I haven’t had a conversation with Amitabh (Chaudhry, CEO, Axis Bank) from an Axis perspective. So, is there a desired shareholding that we would like? Of course, I’d be happy owning more. I think the question for both Amitabh and me would be, if we increase our shareholding, what’s the thing you gain or lose in doing that? But the thing you should definitely take away is that there’s never been a discussion of having less.
Coming the US, what’s your assessment of the impact of Donald Trump’s policies on markets and the economy? Sometimes you have to pinch yourself to remember that we are nine months into the first year of a Trump presidency for the second time. We’ve got a long way to go. It might feel a bit longer than nine months because of the sheer amount of change that we’ve seen during that period. There’s no reason to indicate that this pace or pressure is going to ease up over the next three years. What we have not yet seen is the kind of policy stability that markets like to remove volatility. So, the key thing that’s becoming apparent in all the conversations we have with clients around the world is: you need to build resilience into portfolios.
And, how, in your opinion, do you build portfolio resilience?
If you think about most people’s equity allocation to date, you wouldn’t start from here. It’s overly exposed to the US market and to the hyperscalers (big tech) in particular. So the key thing for resilience is diversification. You’ve seen a lot of flow into alternatives, and into non-correlated assets like gold and silver, as well as insurance-linked securities and catastrophe bonds. The key takeaway from the impact of having a Trump presidency is that people see the need for resiliency, for greater diversification, and for thinking more deliberately about portfolio allocation over the next 18 months. Now, that 18 months might even be too long, because lots of people are concerned about valuations in parts of the US equity market.
Does that mean it is high time to cut exposure to the US stocks, which are showing no signs of slowing?
There’s this really weird thing going on with CIOs at the moment. Everyone agrees with the need for resilience and diversification, but the key question is: when do you start that portfolio pivot? My daughter introduced me to two phrases — I always knew about FOMO, but she told me there’s also FOBO, which is fear of a better offer. You don’t want to be the one who moves money out of the US equity market when it’s still going up. But if you leave it too long, you’re going to have substantial losses. So, I think everyone is in this period where we understand we need to rebalance portfolios. We understand we need to think about portfolio construction differently. We understand we’re too concentrated. But when is the right time to do that? That’s taking up an awful lot of the conversations we’re having with clients about their global assets.
What does the run up in gold and silver tell you about the global economy? Is there more to it?
What you’ve seen in gold is a response to the level of uncertainty, the level of volatility, and the challenge of weakness in the currency market, particularly the US dollar for the first time. When you look at demand for gold reserves from central banks, from sovereign wealth funds and large offices, there continues to be this strong demand for gold as an asset class that is going to sustain increases in the price for a period of time.
as a Reliable and Trusted News Source