OB: It’s ironic that 2020 means perfect vision but our window into it remains foggy. We are in an uncertain territory where every lead indicators are either at a new low or heading there. So how do you think this will play out?
Rajesh Saluja, CEO and managing partner, ASK Wealth Advisors: It is during crises like these that you end up finding gems. Yes, our economy has weakened over one year, but that’s an outcome of the structural reforms such as GST (Goods and Services Tax) and demonetisation, which has been further accentuated by the NBFC crisis. Every year there is some noise. You can’t avoid equities. It’s all about making the right choices. Even in an uncertain year, equities have fetched 13-14% return. Even in real estate there’s opportunity; it is getting better to invest as a fund and not directly in property. Gold also remains a fair option from an allocation perspective, but equity is by far the best asset. Fixed income has been a challenge and we have always believed that it is far riskier than equity. Unfortunately, clients chase higher returns in debt, and that is where we get stuck. So, you have to guide clients to remain focused on safe investments.
OB: So, are clients convinced that this is a good time to shop?
Saluja: Smart clients have been making equity allocations over the past few months. Even if you look at retail clients, they are not timing the market, but are investing systematically through SIPs. So, anyone who has is seasoned and has seen two or three cycles still has a larger allocation in equity. People are shying away from alternatives such as real estate. In fact, we are finding it hard to get clients to invest in real estate funds due to a negative perception.
OB: What gives you the conviction that the pain is over for the real estate sector?
Saluja: In real estate, the good has been separated from the bad. The industry is not dead. While the Uber-Ola phenomenon is being seen as one factor impacting auto sales, in real estate, people still want to own a home, especially in the middle and lower-middle classes. We are still sometime away from when rentals and co-living will become mainstream. There is still a supply demand mismatch in certain areas. What is keeping buyers away is the execution risk, concerns over stability of jobs and partly interest rates.
Yatin: Interestingly, we did a survey few months back, across 35 cities, covering 500 clients whose collective net worth is $20 million. Unanimously 94% clients said they would rather sell than buy any RE as the sector is plagued by far too many problems. In fact, if we take a look at the balance sheets of top 10 RE companies, there is a huge refinancing need of around $30-50 billion. You need foreign capital as you can’t raise that kind of money in India.
OB: Oisharya, how are you assessing the landscape?
Das: In 2000, you had the dotcom crisis, in 2008 the Lehman crisis happened, but all of those were linked to equity. This time around, it is debt. Clearly, one cannot time the market and investors have also stayed the course for a longer duration. We can take opportunistic, tactical calls such as going underweight and overweight based on valuations. But to go 100% to nil on equities is not ideal, and that’s something that has worked well in maintaining asset allocation. Valuations look reasonable right now, so we have changed our market cap bias from 70% on large-caps and 30% on mid-caps to 60% and 40% respectively. So, as long as one sticks to asset allocation and has a balanced approach, there is money to be made in equities. In alternative asset classes, we have seen reasonable success in newer products such as REITs and other private equity opportunities.
OB: Do you all believe that the structural reforms have caused more damage than gain?
Shah: These reforms ensure future growth and a level-playing field for investors. Any reform needs to be tweaked along the way.
Saha: I believe demonetisation and GST have created a lot of disruption and impeded growth, which got a further jolt from the NBFC crisis. Purchasing power has not increased, and that has affected sentiment. Further, the IBC hasn’t proved to be effective, with previous promoters stalling the process. So, there are multiple factors at play. But if the government intervenes strongly, I think there is hope. We will see better days from the third quarter of next year.
Kapoor: It’s important to understand that Indian policymakers have chosen to respond to the credit crisis very differently from what the Fed has done. In 2009, the RBI gave a back stock to the NBFCs, but that was never utilised. This time, they chose not to do that. They said they would create enough liquidity in the market and will come out with policy responses that will enable capital to be raised. So far, the government has only responded with “please go through the readjustment”; we will structurally solve the problem, but we will not bail you out.
Saluja: One can argue about the timing and execution, but from a long-term perspective, structural reforms are good. If you kill the parallel economy, how will growth not slow down? So, we are going through that process of change. Now, the government also needs to focus on the demand side. What we must understand is that the slowdown is also being impacted by a weakening savings rate, falling capex since 2012, and changing business models.