Mr. Nikhil Rungta
Co - Chief Investment Officer - Equity, LIC Mutual Fund Asset Management Ltd.
Mr. Nikhil Rungta is a seasoned investment professional with extensive experience in managing diverse investment portfolios. He has a track record of developing and implementing successful investment strategies and also has demonstrated ability to conduct comprehensive market analysis and identify investment opportunities. Mr.Rungta is a Rank holder Chartered Accountant, MBA (Finance)-NMIMS, FRM (GARP) and also has ESG certification issued by CFA UK Society.
Q1. We're aware of the adjustments to LTCG and STCG announced in the Budget. How do you think these changes will affect mutual fund investments?
The recent adjustments in LTCG and STCG may slightly reduce post-tax returns for equity mutual fund investors. However, Equities and Mutual funds being long term instrument for wealth creation, the impact may be miniscule. Despite the hike in capital gains taxes, India's rates remain among the lowest globally. The modest increase, particularly in long-term capital gains, still positions equity mutual funds as the most favorable asset class for long-term investors.. Overall, the impact of these tax changes on equity mutual fund investments is expected to be minimal.
Q2. We know that tax changes shouldn't necessarily drive investment strategy adjustments. However, to optimize benefits, is there a specific category that has become more appealing following these changes?
As noted earlier, the recent tax changes will have a minimal impact in individuals investment strategy and Equities may continue to be a preferred asset class.
Q3. What's your view on SEBI's measures to regulate the surge in retail activity in F&O trades? Do you think these measures will be effective?
Globally, institutional investors dominate the F&O markets due to their expertise in strategy and risk management. In contrast, India has a significant retail investor presence in these markets. SEBI's studies indicate that most retail investors incur losses in F&O trades, likely due to inadequate strategy and risk management. While Indian equities may offer strong risk-adjusted returns for long-term investors, the same cannot be said for short-term F&O trades. Therefore, SEBI's measures are a step in the right direction. The proposed increase in securities transaction tax and short-term capital gains tax could reduce retail participation in F&O to some extent. To further curb speculative trading, SEBI might consider reducing the number of single-stock options and increasing lot sizes to make speculative positions more challenging for small investors.
Q4. Given the current global economic headwinds, how resilient do you believe the Indian market will be for the remainder of the year? To what extent will domestic factors outweigh global influences?
The Indian equity market is influenced by global factors such as growth, cross-border portfolio flows, and investor sentiment. While global macroeconomic headwinds will inevitably affect India, the country is better positioned than most peers. Strong macroeconomic performance, robust corporate earnings growth, increasing household equity allocations, and reasonable valuations suggest that the Indian market may l demonstrate greater resilience.
Q5. Given the recent appreciation of the yen, could the unwinding of yen carry trades impact Indian equity markets? Are there potential risks of capital outflows from India due to this shift in global currency dynamics?
The global carry trade exposure since 2021, is relatively modest compared to the size of the global financial system. India’s exposure, is also not significant. According to market analysis, globally major part of yen carry trade has already seen significant unwinding. Therefore, yen carry trade poses no major challenge to Indian or global equity markets at this stage. Given strong macroeconomic and corporate fundamentals, along with reasonable equity market valuations, India is unlikely to face significant cross-border portfolio equity outflows in the near term.
Q6. Reduction in the corporate tax rate for foreign companies from 40% to 35%. Is it a move in the right direction?
Yes, this reduction will likely encourage more foreign direct investment in India.