Mumbai, January 19, 2023: Despite potential short-term challenges, DSP Investment Managers is confident that the India story is a reality now. In its annual note – 2023, It’s a relative world, DSP says that the country’s structural turnaround is being accelerated by several factors, including de-leveraging by corporates, increased capacity utilization in the manufacturing sector, government investment in infrastructure and a well-capitalized banking system. This represents a major shift and a significant opportunity for investors as India continues to rise in the global economy.
The note mentions that currently, there are two main risk factors to consider: interest rates and growth. While central banks are prioritizing inflation over growth at the moment, there are signs that inflationary pressure may be decreasing. The market might not be considering the possibility of a slowdown in growth enough. This could lead to further downward revisions in the near future. Current multiples for Indian markets (the MSCI India Index is trading at ~21X Forward PE) are high compared to history and the returns from these levels have been moderate in the past.
The note also highlights that 2022 has been a challenging one for the “Quality” factor in India and globally, particularly in the US where it has experienced one of its worst years since 2008. But “Quality” factor has been one of the best performing factors, second only to “Momentum” since 2007. It is worth noting that the recovery of this factor has often been gradual rather than sharp in the past. In contrast, the “Value” and “Momentum” factors tend to exhibit more significant fluctuations. Hence, we need to be cognizant of these behaviors.
While it is natural to speculate on the future movements of commodity prices, central bank policies, liquidity levels, and the impact of COVID-19, DSP mentions in the note that it is important to recognize that these factors may not have significant bearing on the success of most investors. Instead, what has often made a difference is avoiding significant mistakes at pivotal moments, maintaining investment discipline, and accepting that higher equity returns come with a certain level of volatility.
Vinit Sambre, Head – Equities, DSP Investment Managers Pvt Ltd said, “It is heartening to see that Indian investors are choosing to participate in the growth of the Indian economy and markets. Our recommendation to these investors has been simple and consistent: take a balanced approach. As we have emphasized in previous annual notes, such as “Shooting For The Moon” and “Principles, First,” it is not prudent to exit the equity asset class when valuations are high. Instead, it is important to be pragmatic and recognize that future returns could be lower when an asset is purchased at a higher price than when it can be acquired at a lower price. It is important to rebalance portfolios so that you have the appropriate mix based on your goals and risk profile. Having the right expectations, maintaining discipline and being patient can take you far in your investing journey.”
