By Ashley Coutinho
Wealthy investors are bullish on the India growth story and believe there is room to increase allocation to equities, says Ashish Kehair, managing director and CEO, Edelweiss Wealth Management. In an interview with Ashley Coutinho, he says mid- and small-caps will do better in the coming quarters since they have higher exposure to the domestic growth story than large-caps. Excerpts.
Has the risk-on sentiment returned among wealthy investors?
Wealthy investors are bullish on the India growth story and believe there is room to increase allocation to equities. The demand scenario in India is quite resilient. In the June quarter, revenue growth was encouraging, especially when one considers slowdown in China and similar trends playing out in the US and Europe. We are on a stronger wicket as far as fundamentals are concerned. Outflows from overseas investors have moderated. All these factors make for a compelling case for staying invested in equities.
What is your take on mid- and small-cap stocks at this juncture?
In 2022 till date, mid- and small-caps have been trading in line with large-caps. But I think mid- and small-caps will do better in the coming quarters since they have higher exposure to the domestic growth story than large-caps. Also, the benefits of operating leverage in mid-caps are much higher than in large-caps.
Are there any takers for credit risk funds at this juncture?
Credit risk funds are not seeing sizeable investments. The assets under management (AUM) of these funds have remained stagnant at around `26,000 crore, which is similar to the AUM a year ago. Retail investors have reduced exposure to this category. HNIs are investing in these funds via alternative investment funds. One can see that direct issuances have also started gaining traction. As the credit spreads become more favourable, investors will increase allocation to select issuers.
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What are your views on gold as an asset class?
Gold prices touched nearly $2,100 in March before dropping to the current level of around $1,700. Since the rupee has depreciated against the US dollar by close to 7% from February, the value of India’s investments in gold in rupee terms has not changed significantly. To a certain extent, it can also be attributed to hike in customs duty on gold to the tune of 5% in June. Russia’s central bank has the fifth-largest reserves of gold of close to $140 billion in the world. If they sell their gold reserves to manage the ruble, gold prices could slide further. We believe the focus of central banks may shift to growth soon. Currently, we are not overweight on gold.
What is your take on international investing?
International markets have attracted the attention of investors. The number of international funds available for investing in offshore assets has gone up as well. Even outward remittances under Liberalised Remittance Scheme have increased. In overseas markets, investments in real estate have been largely focused on the big cities. Dollar-denominated bonds have attracted higher investments as they are providing 100-120 basis points higher yield when compared to rupee-denominated bonds.
How is technology playing a role in wealth management?
Investors are moving away from traditional avenues of savings to more tax-efficient capital market instruments. In the last few years, there has been considerable advancement in reach and transaction convenience in products such as mutual funds, PMS, AIFs, bonds and insurance products. With the advent of technology through the India stack and the proliferation of smartphones, clients in remote areas can now seamlessly access and transact. This is benefitting both the manufacturing (asset management) and distribution (wealth management) players at large. In addition, specialised products are being created, giving clients access to asset classes and risk-return profiles that were not available earlier or were available to an exclusive club of investors.
What are your plans for Edelweiss Wealth Management in the coming months?
We will focus on key elements like demerger, listing, building structural efficiencies and improving our credit rating profile. We are working on the demerger and believe that regulatory and other approvals would be completed in the stipulated time. Then, we will think of listing. Since we are demerging from a listed company, we will get listed without an IPO.
What do you make of new-age wealth management firms?
We deal with ultra-HNIs and institutional clients and provide them wealth management, investment banking, institutional equities, and asset management services. On the other hand, new-age players cater to mid-to-retail clients. They offer single product access using tech-based platforms. They are yet to discover a profitable business model. Only a few have been able to do so.
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By Ashley Coutinho