Investing today is incomplete without talking about fund vehicles such as mutual funds. They offer many benefits, like easy access to financial markets, portfolio diversification, and ease of monitoring, among a host of others. When you invest in mutual funds, every investment decision that a mutual fund manager takes involves a degree of risk. Consistent performance over market cycles indicates experience and expertise to navigate a fund portfolio through tough times and generate superior returns when markets are climbing. Hence, it is also essential to pay attention to the portfolio characteristics of a mutual fund scheme, as the fortune of a mutual fund scheme is closely linked to the portfolio it holds. If the portfolio characteristics of the scheme are not up to the mark, it could show up in inconsistent returns. In this webinar blog, we shall discuss the Indian Market outlook for 2023, the Performance of PMS, the China Plus one strategy, the Performance of Indian IPOs, and the Indian Automotive Industry, among others.

Based on the above, PMS Bazar conducted a  webinar on the topic "Key to Consistent Performance". The webinar speaker, Mr. Surjitt Singh Arora, is the Portfolio Manager for PGIM India Phoenix Portfolio and PGIM India Core Equity Portfolio Strategies. He has more than 16 years of rich work experience in Equity Markets, including over six years in the asset management industry. Mr. Surjitt Singh Arora first presented in detail their Core equity portfolio & Phoenix portfolio. In the second half of the webinar, Mr. Surjitt answered many questions from the audience, addressing a wide array of topics.

Key Highlights of the Webinar

• Summing up 2022, foreseeing 2023, headwinds India will face 2023
• China Plus  one factor – Is it playing out or hype
• India's conception Story versus expert-oriented story
• Interest rate hikes

1. Summing up 2022, foreseeing 2023, headwinds India will face 2023

Today we are in an uncertain environment. Hence, 2022 was uncertain, and 2023 is expected to be uncertain, given how macros are shaping up. Nobody knows what will happen next – the Russia-Ukraine conflict, inflation, or what will happen to gas and crude oil prices. If you look at inflation and being in a globalized environment, and if things are not going well globally, the litmus test for that is crude oil prices, which will start falling/declining. Moreover,  Europe has already gone into recession, and the US is talking about recession and rate hikes.

If you look at the correlation between Indian equity markets and US equity markets over the last 10 to 15 years, it's around 0.7. Therefore, last year's domestic flows were quite strong; thus, our impact was relatively low, and we could outperform otherwise. In addition, if you look at FIIs, their broad allocation on a global scale is crude. If crude is below 100, they may increase their allocation; otherwise, if crude goes above 100, they are the ones who are the first to take the money off the table and would prefer to invest in emerging markets.

However, given that India is quite globalized and a lot of the Indian companies are also exporting and importing a lot of things, we can't turn a blind eye to global growth. Globally interest rates are rising, so global demand in Europe and the United States is slowing, which will impact Indian entities. If you look at inflation, you'll notice that due to the global slowdown, many commodities that saw their peaks in April last year have dropped in price, be it aluminum, copper, or even crude. All have corrected 25  to 30 percent. So if this continues going forward, given that India is still the net importer, it will bode well for corporate India's overall profitability.

2. China Plus One Factor – Is it playing out or hype?

It is playing out, but not to the extent that we anticipated. Countries like India, Vietnam, Thailand, Mexico, Taiwan, and Malaysia filled the vacuum in supporting the world's ever-growing demand for machinery, automobiles, transport, and electrical equipment. In the long run, the economic stars are aligned in favor of India. India possesses low-cost production, a conducive business environment, and incentivizing government policies to support the companies.

To put things in context, Indian chemical companies are so small in scale that even if they get two to three percent of the total order from pharmaceutical companies or global agrochemical companies, they can have a long runway to grow. Also, capex announced by specialty chemical companies with solid balance sheets and who have the scale and the technology gives some idea that some portion of global manufacturing companies' orders are coming to Indian entities, and thus they are setting up huge clients, which gives them visibility of over the next five to ten years in terms of setting up.

3. India conception Story versus expert-oriented story

Last year, much urban and discretionary consumption happened because of opening up trade. Since our economy is so big and due to our huge consumption profile, many companies could not generate enough production to take care of in-house consumption. So there was pent-up demand, and incrementally, fund managers were tilting toward domestic companies. 

At the same time, the global environment is still in a difficult phase, and we live in a very uncertain environment. Europe is slowing down the recession, and rate hikes are still happening in the United States. Therefore, this trend of inclining domestic companies may continue in the first half of this year. However, once we see a pause from the Fed or even globally, things will stabilize, and eventually, people will start looking at export-oriented companies.

4. Interest rate hikes

According to Mr. Surjitt Singh Arora, "There may be one or two more hikes forthcoming in the US market, and an increase in interest rates will affect PE ratios because we consider both the 10-year bonding for our markets and the earnings series. Therefore, from that perspective, the risk-reward ratio is not very favorable. However, my impression is that this year will be difficult to predict, but in CY23 this year, you will see a pause from Fed if that happens, and obviously, India will mirror what International markets are doing from an interest rate point of view if in India."

Inflation has been declining over the past two months. This inflation rate has been quite interesting and consistent with what the RBI has been advising. With commodities correcting, we might have a situation where inflation might be under control in the second half, and the incremental increase in interest rates will not be required. The underperformance of equity will catch up once the market realizes that interest rates have reached their top, and eventually, within the next three to six months, equity will again be in trend.

Mr. Surjitt Singh Arora discussed many other topics in detail. For more insights on this webinar, please click the appended link.

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