Interviews

Mr. Dhawal Dalal

Chief Investment Officer - Fixed Income

With over 20 years of experience and an MBA from University of Dallas (USA), meet our CIO of Fixed Income Asset - Mr Dhawal Dalal.

Dhawal has joined Edelweiss Asset Management Limited in the year 2016. He is responsible for the overall growth of fixed income assets through a healthy mix of retail and institutional clients.

When not occupied with work, he loves reading on emerging trends in the global markets, geo-political developments and books on behavioural trends. He’s also a movie buff and never misses a chance to watch a blockbuster with his near and dear ones. A humble and learned person, he strongly believes that every individual should have a sense of purpose in life!

Before joining Edelweiss Asset Management Limited, he was the head of Fixed Income at DSP Black Rock Investment Managers Private Limited and led a team of Fund Managers managing fixed income assets. His role there was to expedite overall growth of fixed income assets, performance and client interactions.

Q1. Should geopolitical tensions intensify, there could be repercussions on crude oil prices, making inflation a significant concern for investors. What rate trajectory do you anticipate from the US Federal Reserve and the Reserve Bank of India (RBI) in FY25?

Ans: Our base case for crude oil prices to settle between $75 to $80 per barrel in FY25. That said, India’s continued purchase of cheap Russian oil and its settlement in non-USD currency is quite beneficial for India’s FX reserves and overall inflation outlook. We continue to expect average CPI to be around 4.5% in FY25 as indicated by the RBI. If there is any potential uptick in average inflation, it may come from food prices, in our view.

On rate cuts, we believe that the Fed wants to cut rates and are optimistic that the US economy will mend in the way that will allow FOMC to cut rates in CY24 by at least two times, if not three. At the same time, RBI will also look to reduce policy rates in the second half of FY25 after gaining confidence on the trajectory of monsoon and its impact on food prices. We anticipate two cuts in Repo Rate to 6% in FY25.

Q2. SEBI has been making efforts to stimulate activity in the NCD market. Would decreasing the minimum investment size in NCDs to Rs. 10,000 potentially appeal to a broader base of retail investors?

Ans: Absolutely. We believe this is a step in the right direction. That said, more changes need to be made for investor education and investor awareness towards the bond market.

Q3. As per AMFI annual report 2024, the debt category saw a marginal gain in folios in fiscal 2024, after degrowth in the previous two fiscals. Do you see the investors retaining confidence in the segment?

Ans: At present, most investors are focused on arbitrage funds given their attractive monthly returns and lower tax profile as compared to investment in bonds funds which are now taxed at marginal tax rates. Plus, bullish equity markets are also playing their role in higher equity allocation by bond market investors.

We believe that investors will consider bond market and will appreciate its relative stability only when there is an extended downturn in equity markets.

Q4. After positive inflows in Jan and Feb, we saw around Rs. 1.98 lakh crore of outflows in the debt funds in the month of March, with most of it in the liquid category. What could be the trigger points for it?

Ans: Outflows from fixed income funds in the month of March is always seasonal. This outflows is temporary and is reversed in April first-half itself. That said, this year was a bit different due to national elections and consequent implementation of model code of conduct leading to slower government spending in the new financial year. This has led to continued tightness in the banking system liquidity and money markets.

Q5. In FY24, the Indian fixed income markets demonstrated relative stability, particularly in contrast to the high volatility witnessed in the debt markets of the US and other advanced economies. What are your expectations from FY25?

Ans: We expect IGBs to exhibit relatively lower volatility as compared to UST in FY25. This is primarily due to the fact that macro-economic landscape is relatively stable in India as compared to US where inflation and unemployment data continue to surprise market participants with its resilience and going against the Fed pivot in December 2023.

At the same time, inflation in India is relatively well-behaved and likely to trend lower in Q2 and Q3 of CY24 due to base effect and other factors.

Further, we expect ~$20 billion of FPI inflows in FAR bonds over the next ten months starting June 2024. This should provide a ready bid for the IGBs from FPIs.

The INR has also been relatively stable and well-behaved against the USD YTD among Asian peers.

All these have contributed to relative stability in the prices of IGB as compared to UST so far. We hope this trend will continue for the rest of the year as well.

Risk to our view may come from unexpected outcome from national election results and / or sudden spurt in geopolitical risk.

Mr.Trideep Bhattacharya

Equities - Chief Investment Officer, Edelweiss Mutual fund

With PGDBM in Finance from SP Jain Institute of Management & Research, Mumbai and B.Tech in Electrical Engineering from IIT, Kharagpur, meet our CIO Equities – Mr. Trideep Bhattacharya.

Trideep comes with over two decades of experience in Equity investing across Indian and Global markets. Prior to joining Edelweiss AMC, he was instrumental in building a market leading PMS business at Axis Asset Management Company, as Senior Portfolio Manager – Alternate Equities.

He has also spent a significant amount of time as a Portfoslio Manager at State Street Global Advisors and UBS Global Asset Management (London, UK). When not occupied with work, Trideep loves playing Tennis, Bridge and is hands on with few musical instruments.

Q1. Despite geopolitical concerns, the market has started picking up momentum. Where do you see the market trend heading?

Ans: We perceive that the "uncertain" macro-environment, influenced by geopolitical tensions and local elections, obscures the underlying economic vitality of India Inc. This momentum is particularly evident in specific sectors such as capex, real estate, and defense, among others.

Consequently, we regard the volatility stemming from these macro-conditions as a chance to invest in exposure to the aforementioned sectors through mutual funds. We anticipate that the resilience in earnings will be mirrored in buoyant share prices in the long term.

Q2. In FY24, numerous stocks have seen significant gains, turning into multibaggers. However, it's well-known that leadership positions shift in each cycle. Which sectors do you anticipate will lead the next bull run in the markets?

Ans: Assuming macro-stability at the center, we foresee manufacturing-related sectors/themes continuing to lead the way in equity markets. With India Inc.'s capacity utilization hovering around the late 70s, we anticipate the central government will likely aid capital formation within Indian economy in the coming years.

Consequently, we surmise that Industrials/capital goods, Real estate, Defense, and Power-related sectors will spearhead sector leadership in the foreseeable future.

Q3. Do you foresee an increase in Foreign Institutional Investors (FIIs) flows following the election results? Or do you believe that the results don't significantly influence FII inflows, with decisions primarily driven by central bank interest rate structures?

Ans: We anticipate a decline in the Indian equity markets' dependence on Foreign Institutional Investors (FIIs) in the future, driven by consistent inflows from domestic sources such as SIPs and pension-related contributions.

Furthermore, we observe that the earnings resilience of Indian companies stands out favorably compared to other global economies. Although valuations may seem high, we expect the relative strength of earnings resilience to attract FII inflows into India over time.

Q4. What insights can we derive from the fact that the total number of folios in the Indian mutual fund industry has doubled over the past five years, reaching 17.79 lakh crore? How does this reflect on the growth of equity culture?

The doubling of the total number of folios in the Indian mutual fund industry over the past five years, reaching 17.79 lakh crore, indicates several significant insights.

Firstly, this growth reflects an increasing participation of retail investors in the Indian mutual fund market. As more individuals invest in mutual funds, it suggests a growing awareness and acceptance of mutual funds as a viable investment option.

Secondly, the expansion of the mutual fund industry points towards a deepening equity culture in India. Traditionally, Indians have favored safer investment avenues like fixed deposits and gold. However, the rising number of mutual fund folios suggests a shift towards equity investments, indicating a growing confidence among investors to take on market risks for potentially higher returns.

Additionally, this growth in mutual fund folios signifies a broadening of the investor base beyond urban centers to smaller towns and cities. As mutual fund distributors and online platforms reach out to a wider audience, more people from diverse socio-economic backgrounds are participating in the equity markets through mutual funds.

Overall, the doubling of folios in the Indian mutual fund industry reflects a positive trend towards the democratization of investing and the development of a robust equity culture in the country.

Q5. What are your thoughts on the earnings for the March quarter? What insights are you gathering from the management commentary?

Ans: The Nifty-50 Index has witnessed a 14% year-on-year growth in earnings for the March quarter of FY24, aligning closely with our projections. However, a closer examination reveals a dichotomy in the results of the March quarter FY24, with a positive trajectory for Industrials/Infrastructure/Capital goods sectors juxtaposed against a downturn for consumption-oriented stocks.

While companies benefiting from the India capex theme demonstrated resilient earnings, there was widespread weakness observed in consumption-oriented stocks, particularly those exposed to the lower income and rural segments of the economy. Some company managements expressed optimism regarding a potential rural recovery contingent upon favorable monsoon conditions.

Q6. What advice would you offer to Generation Z who have recently entered the workforce? How should they begin constructing their portfolio?

Ans:For Generation Z individuals who have recently entered the workforce, constructing a portfolio that aligns with their financial goals, risk tolerance, and time horizon is crucial. Here are some tailored pieces of advice:

1.Start Early and Stay Consistent: Take advantage of the power of compounding by starting to invest as early as possible. Consistency is key, so commit to investing a portion of your income regularly, even if it's a small amount.

2.Diversify Your Portfolio: Spread your investments across different asset classes such as stocks, bonds, mutual funds, and possibly alternative investments like real estate or commodities. Diversification helps reduce risk and maximize potential returns over the long term.

3.Assess Your Risk Tolerance: Determine your risk tolerance based on factors like your age, financial goals, and comfort level with market fluctuations. Younger investors generally have a higher risk tolerance since they have more time to recover from market downturns.

4.Stay Disciplined and Patient: Investing is a marathon, not a sprint. Stay disciplined in sticking to your investment plan and avoid making emotional decisions based on short-term market fluctuations. Patience is key to realizing the full potential of your investments over time.

5.Seek Professional Advice if Needed: If you're unsure about how to construct your portfolio or navigate the investment landscape, consider seeking advice from a financial advisor. A professional can provide personalized guidance based on your individual circumstances and goals.

By following these guidelines, Generation Z can lay the groundwork for a solid investment portfolio that sets them on the path toward long-term financial success.

Mr. Shridatta Bhandwaldar

Head - Equities, Canara Robeco

Over 11 years of experience, From October 2019 till date in Canara Robeco Asset Management Company Limited as Head - Equities, From July 2016 to September 2019 in Canara Robeco Asset Management Company Limited as Fund Manager, From July 2012 to June 2016 in SBI Pension Funds Pvt. Ltd. As Head Research/Portfolio Manager, From October 2009 to June 2012 in Heritage India Advisory Pvt. Ltd. as Senior Equity Analyst, From January 2008 to September 2009 in Motilal Oswal Securities as Research Analyst, From April 2006 to December 2008 in MF Global Securities as Research Associate.

Q1. After the recent stress test results released by AMCs, do you foresee a change in investors’ approach towards small and midcap stocks?

Ans: We see this as an event which sensitizes investors to risks associated with a relatively illiquid part of the market. Many investors are unaware about some of these parameters which should be kept in mind while investing in small and mid-capitalization category and the disclosure of those parameters is a good move by the regulators. Having gained a thorough understanding of the risk factors employed, investors can now better determine which fund in the aforementioned equity categories corresponds most to their individual risk tolerances.

Q2. After midcap and smallcap funds, SEBI has now directed Mutual Funds to stop accepting inflows into overseas ETFs. Is there any need to worry?

Ans: No - as far overseas ETFs are concerned; this is more to do with external balance and forex management by RBI, which has kept a limit in terms of overall USD equity overseas investments possible. It’s more contextual and as when RBI feels comfortable, it will allow these limits to be increased.

Q3. Despite the concerns surrounding the broader market, do you think India can outperform its EM peers in 2024 as well?

Ans: Given that India will have superior earnings growth profile than most other emerging markets; we expect India to outperform in CY24 as well; although we expect absolute returns to be relatively modest in CY24. Indian macro remains best among larger market peers while political stability looks almost given. We believe that India is in a business cycle / credit growth cycle through FY24-27E – indicating starting of healthy earnings cycle from medium term perspective. 

Q4. The transition to T+0 trade settlement is viewed as a game changer for our market. How will it impact the mutual fund industry and how will it benefit investors?

Ans: It will clearly improve overall efficiency of the system. Mutual fund industry would have to add additional risk layers in asset liability management so that redemptions can be honoured on T+0 basis. Given that T+0 significantly increases their responsiveness and potential rewards, investors seeking better liquidity will benefit from it. This revision will substantially reduce the risk exposure for ordinary investors, minimizing counterparty, opportunity, and liquidity concerns. 

Q5. What is the biggest risk you see for markets in FY25 that might derail the bull run?

Ans: Adverse election outcome any unexpected development that contradicts what the market has already priced in might impact the bull run significantly. West Asia has become a major trouble spot with the Israel-Gaza war showing no signs of an immediate end causing increased complexity of geopolitical situation in Middle East / Asia. Also, moderating earnings growth through FY25 would be a fundamental risk to markets in near term.

Q6. Are there any sectors that might emerge as the dark horse during the next 12 months?

Ans: Chemicals and consumption. The growth of India's chemicals market is being driven by an increase in demand from end-user industries including food processing, personal care, home care and related industries which is expected to continue. Private consumption is the biggest component of India's economy & is expected recover further going forward as the gap between rural and urban demand and demand for goods narrows.

Mr. Avnish Jain

Head - Fixed Income, Canara Robeco

Over 21 years of experience, From September 2013 till date in Canara Robeco Asset Management Company Limited as Head - Fixed Income Details, From December 2010 to September 2013 in ICICI Prudential Asset Management Company Ltd as Senior Fund Manager, From October 2008 to December 2010 in Deutsche Asset Management (India) Private Limited as Head of Fixed Income, From January 2007 to October 2008 in Professional Services with Misys Software Solutions (I)Ltd as Senior Consultant, From August 2005 to January 2007 in Yes Bank Ltd as Head of Trading, From November 1998 to August 2005 in ICICI Bank Ltd as Senior Trader - Proprietary Trading.

Q1. US Fed signals 3 rate cuts in 2024, how will it impact the interest rates and the overall bond market of India?

Ans: US rate cuts are likely to be beneficial to the local bond markets with the RBI also likely to reduce the repo rate, which may lead to drop-in interest rates. Lower interest rates are good for bond markets in general.

Q2. State Governments aim to raise Rs. 50,000 crore through bonds. What will be the impact on the Indian debt market of such high borrowing by State Governments?

Ans: State governments routinely borrow on a weekly basis from bond markets. Last year the total borrowing by states was Rs.10.07 lac crores in FY 2024. So borrowing on Rs.50,000 cr will likely not put any additional pressure on bond markets

Q3. How does the tightened liquidity from RBI impact investment in fixed income funds at the short end of the curve?

Ans: The short end of the yield curve typically reacts to changes in liquidity. If liquidity is tight, investors tend to hold cash or invest in very short-term papers. Hence, lack of demand for short term papers keeps short term rates elevated. When liquidity becomes easy, cash rates drop, which lead investors to shift to short term papers, leading to drop in yields in the short end of the curve

Q4. How are government and corporate bond yields expected to move, considering key events like election and global bond index inclusion?

Ans: The government and corporate bond yields are likely to be more impacted by global bond inclusion as the extra demand created is likely to lead a drop in government bond yields. The drop in government bond yields will likely be mirrored in corporate bond yields as well. Overall, FII inflows on global bond inclusion is likely to be positive for bond markets.

Q5. Inflation has continued to show a downward trend with inflation easing to 5.1% in Jan 2024 as compared with 5.7% in Dec 2023. However, RBI has continued to show its concern on the food price shocks going ahead. How do you think inflation numbers would slide in the coming future?

Ans: Combined CPI Inflation has further dropped to 4.85% for March 24. Core inflation continues to slow down and has been around 3.5%. This is below RBI’s target of 4% medium term inflation target. However, the volatility in food price and energy prices, emanating both from global factors and climate change related inclement weather has kept RBI in a cautious mode. CPI inflation is likely to moderate in the coming months. With IMD predicting a normal monsoon in 2024, food inflation is likely to remain under control, though energy prices could be adversely affected on current geo-political environment.

Q6. In the current market scenario, investors should opt for which investment strategy - accrual or duration based?

Ans: Considering the current situation, investors can be advised to follow a combination of accrual and duration strategy. US rate cuts are expected this year; however, the timing of rate cut is unclear. This is likely to keep markets volatile. Geo-politics will further add to this volatility. In this situation, investors can choose to opt for a medium duration accrual strategy like Banking & PSU Debt / Corporate Bond funds.