Investors should temper their expectations of equity returns in 2022 and stick to their asset allocation, says Sameer Kaul, MD & CEO of TrustPlutus Wealth (India), a wealth management firm overseeing around Rs 11,000 crore in client funds.

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“The recent rally has made valuations exorbitant, this calls for a cautious approach to investing hereon,” Kaul said in an interview to cnbctv18.com.

He believes that an investor should diversify their investment across asset classes.

“This applies to both equities and fixed income. Investors should stick to their asset allocation and also moderate return expectations in 2022. We would also advice investing a portion of the portfolio in international equities from a diversification perspective,” he said.

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He cautions investors against trying to time the market, something that even veteran market players have failed to master. Kaul quotes a line by Nick Murray who is the author of Simple Wealth, Inevitable Wealth and The Excellent Investment Advisor. “Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage,” he says.

Kaul’s investment philosophy could be termed conservative. He prefers stocks available at a low price to earning multiples and which pay good dividends. At present, he is bullish on Indian private sector banks, information technology companies and select pharmaceutical and fast-moving consumer goods names. He also favours utility companies that offer a steady dividend and are inexpensive in valuation.

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While there are pockets of opportunity in the mid and small-cap space, he believes valuations, in general, have become expensive given the run-up in the last 18 months. That said, investors should be wary of where to put their money and should consider the nature of the business, quality of management and valuation while deciding which company to invest into.

Even as elevated valuations, rising cases of Omicron variant of coronavirus and likely hike in interest rates pose risks to the equity rally, the overall outlook still remains positive.

“The optimism can largely be attributed to three dominant themes namely, the formalisation of the economy, financialisation of savings and digitisation,” Kaul said.

“Large valuation companies have become larger and are likely to report strong earnings going forward. The increasing participation of retail investors in equity markets clearly shows that financialisation of savings is underway in the economy. The ultra-loose monetary policies of global central banks and abundant global liquidity have also contributed to the rally in equities. Several new-age companies have tapped the markets with their IPOs which has broadened the investment universe and brought new investment themes into public markets,” he elaborated.

Meanwhile, hope that the upcoming Union Budget would entail pro-growth measures has also kept the underlying investor sentiment positive.

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“The government finances are in good shape as a result of buoyant tax and GST collections. We do expect a continuous focus on reforms keeping in mind the overarching government priorities on reducing government ownership in non-strategic assets, creating incentives to encourage local manufacturing, measures that may provide a fillip to import substitution as well as a healthy pipeline of disinvestments,” Kaul said.

Given the prospect of a further pick-up in inflation and recovery gathering momentum, there are chances that the Reserve Bank of India and global central banks may raise interest rates from early 2022 and liquidity may also be reined in by the central banks. In such an environment, Real Estate Investment Trusts and Infrastructure Investment Trusts are likely to attract higher investor interest, according to him.

“We remain constructive on both REITs and InvITs and have been actively recommending these investments to our clients. Both REITs and InvITs provide regular income in the form of dividend, interest payments and/or return of capital (amortisation of debt). They also allow an investor to hold an underlying portfolio of high-quality real estate or infrastructure assets,” he explained.

(Edited by : Santosh Nair)

First Published:Jan 19, 2022 1:39 PM IST