Outlook Business Upper Crest 2020

OutlookIndia

Insights from country's leading private wealth advisors - Ashish Kehair, Head, Edelweiss Wealth Management; Ashish Gumashta, CEO, Julius Baer India; Atinkumar Saha, Head, Wealth Management-India, Deutsche Bank and Rajesh Saluja, CEO, ASK Wealth Advisors - at Outlook Business' annual private wealth roundtable, Upper Crest.  Check out the story here: https://www.outlookbusiness.com/speci..  #UpperCrest2020 #OutlookBusiness #Business #OutlookMagazine #OutlookGroup

Transcript

00:00:00 [MUSIC PLAYING]

00:00:03 Good evening, and welcome to Outlook Business Annual Wealth

00:00:07 Roundtable Upper Crest.

00:00:10 I have with me today Ashish Gumasta, Managing Director

00:00:13 and CEO Julius Beyer, Rajesh Saluja, CEO and Managing

00:00:16 Partner, ASK Wealth Advisors, Atin Kumar Saha,

00:00:20 Managing Director and Head of Wealth Management at Deutsche

00:00:23 Bank, and Ashish Kher, Head of Wealth Management at Edelweiss.

00:00:27 Besides, I also have with me V. K. Shivdev, Executive Editor

00:00:30 at Outlook Business, to moderate this discussion.

00:00:32 Gentlemen, it's a pleasure to have all of you

00:00:34 today on Upper Crest.

00:00:37 Even as of last year, we could not

00:00:38 have imagined that we would be doing a roundtable like this

00:00:42 over a video call, right?

00:00:43 And things have changed.

00:00:45 But as far as markets are concerned,

00:00:47 it seems to me like nothing has changed.

00:00:50 In fact, after the initial jitters in March,

00:00:52 from January to March, the markets

00:00:55 seem to be in a party mode.

00:00:57 Is this some kind of irrational exuberance

00:01:00 that is waiting to be squared off?

00:01:02 Or do you guys think this rally is sustainable?

00:01:07 Any one of you can take a shot.

00:01:08 So maybe I could go first.

00:01:13 Sure.

00:01:14 So I think--

00:01:16 I mean, it's always difficult to, you know,

00:01:18 Mahalakshmi, argue that markets will be rational.

00:01:22 I don't think I have ever seen market to be rational.

00:01:25 It either swings towards pessimism or optimism.

00:01:29 And this has been, I think, the shortest possible period where

00:01:33 we have seen both the legs.

00:01:34 Right.

00:01:35 And right now, I think we are at a point

00:01:41 where, from a valuation perspective, yes, we are--

00:01:45 I mean, no longer even fair.

00:01:47 We are reasonably expensive.

00:01:49 And things would settle to, I mean, reasonable levels.

00:01:53 But there would be a trigger needed.

00:01:54 And with passage of time, anything could happen.

00:01:57 But yes, some part of the profit booking

00:02:00 should be done by clients.

00:02:01 And I think it will settle down to reasonable levels.

00:02:04 But you never know.

00:02:04 Again, it could swing to pessimism, as I said.

00:02:07 Sure.

00:02:08 So you are circumspect.

00:02:10 Yeah.

00:02:11 That would be the right thing to say.

00:02:13 Sure.

00:02:15 Ashish?

00:02:16 So what we are seeing is that there's so much--

00:02:22 before, Ashish, you came into the call,

00:02:24 I was just sharing with them that the world is

00:02:28 flush with so much liquidity.

00:02:30 Yeah.

00:02:30 And traditionally, this liquidity

00:02:32 went into businesses and economic activity.

00:02:35 But a lot of that is now going towards investments.

00:02:37 Like my global team was sharing that almost 36%

00:02:42 of the stimulus has moved into savings out there.

00:02:45 So we have a-- similarly, Julius,

00:02:47 where we have a situation where clients are all

00:02:49 holding 20% to 30% cash on their portfolio.

00:02:52 And with interest rates coming down,

00:02:54 what we are seeing is that at every dip,

00:02:57 there will be money coming in.

00:03:00 So globally, also, we think US will continue to see markets.

00:03:05 I mean, that's what our global strategy just says,

00:03:07 that we are positive on US.

00:03:08 We are positive on China.

00:03:10 India, also, we don't see currently,

00:03:12 based on our understanding, a 5% to 7% kind of a correction.

00:03:16 Of course, you have the risks of a vaccine getting delayed

00:03:19 or something coming out of the blue.

00:03:24 But right now, as I meet families,

00:03:27 I was just sharing with Keshav also,

00:03:28 that the overnight liquidity still,

00:03:30 which RBI is carrying, is very, very significant out there.

00:03:33 And if you see Mahalakshmi, the money which came

00:03:37 was very concentrated.

00:03:38 It was in very few stocks, even overseas and even in India.

00:03:42 That has become very concentrated.

00:03:44 But that trend is changing.

00:03:45 So there was talk of value investing, value investing,

00:03:48 value investing, which was going on even last year

00:03:50 when we met for the previous Outlook event.

00:03:52 Finally, if you see, value stocks have just finally

00:03:54 started doing well.

00:03:56 Government of India has pleasantly surprised us

00:03:58 by doing a buyback in HPCL, NDPC doing a buyback of shares.

00:04:03 So suddenly, for the first time, this value trade is emerging.

00:04:06 Now, if you see the PSU basket, a lot of the PSUs

00:04:09 are trading at very--

00:04:10 I mean, in a crude way, you can say it's bankruptcy valuations

00:04:14 right out there.

00:04:14 So the way we see it-- and you saw how the Indian markets was.

00:04:19 First, the pharma sector rallied.

00:04:21 Then the consumer sector rallied.

00:04:23 Then that money went into the IT sector.

00:04:24 Now, that money has gone into the financial sector.

00:04:27 So money, in our sense, will keep rotating.

00:04:30 The players will change.

00:04:31 That's what is our sense.

00:04:32 You may see some more value coming into play.

00:04:36 And possibly with Biden coming, our global strategy

00:04:39 just feels that the value trade may finally take off.

00:04:44 What has Biden got to do with value?

00:04:47 It is the sectors you're supporting, the general--

00:04:52 Trump was seen as a pro-business, tax-wise.

00:04:56 To the tech companies, there were a lot of benefits

00:04:58 which are available out there.

00:05:00 So that's the sense which is there.

00:05:02 Though he has proposed to bring the tax exemptions down,

00:05:10 to tax corporates higher.

00:05:12 So generally, it is supposed to be in a corrective phase.

00:05:15 But see, the fundamental problem is that interest rates are zero

00:05:18 over there, globally.

00:05:19 You can borrow money at zero.

00:05:20 Even in India, of late, home loans

00:05:23 are now available at sub-7% out there.

00:05:26 So my sense is that numbers are going to surprise us

00:05:31 on the positive side.

00:05:32 Unless something extenuating happens,

00:05:33 another lockdown comes in, or some such extenuating thing

00:05:36 comes up, then that's probably not

00:05:38 control of the vaccine gets delayed by a couple of months

00:05:41 more.

00:05:41 But otherwise, things look much more positive.

00:05:45 As Rajesh was saying, we are all born optimists.

00:05:48 So in every crisis, we see some opportunity, which is there.

00:05:53 Sure.

00:05:54 So you are optimistic, primarily because liquidity is plenty

00:05:58 and there is money--

00:05:59 No, no.

00:05:59 --to follow.

00:06:00 You never invest money.

00:06:01 Yeah, you never invest money for liquidity,

00:06:03 because liquidity has a funny way--

00:06:05 No, so money will keep coming into the markets

00:06:07 as and when there are dips or pessimism, bouts of pessimism.

00:06:10 Yeah, that's the current trend that we are seeing,

00:06:12 that at every dip, investors are increasing their asset

00:06:14 allocation, both globally and in India also.

00:06:17 That's the current trend that we are seeing.

00:06:19 But just because there is liquidity,

00:06:20 you invest in the capital markets,

00:06:21 we don't believe in that.

00:06:22 And we see a shift coming slightly to the value trade.

00:06:25 But are we moving all our clients into value

00:06:28 and telling, no, we are not doing that?

00:06:29 We still feel that the growth will continue to do well.

00:06:33 And of course, globally, our study

00:06:35 just feels that China will do well in the coming years.

00:06:38 So we see people now diversifying from US markets

00:06:41 to investing in Chinese businesses.

00:06:44 Sure.

00:06:46 Sure.

00:06:48 Atin or Rajesh?

00:06:50 I may come in and thank a lot.

00:06:52 I just feel what Ashish has said and what

00:06:56 both Ashish's have said makes sense.

00:06:59 Primarily, as we look at it, it needs

00:07:02 to be seen in the backdrop of where we were pre-COVID times.

00:07:06 Now, pre-COVID times in the last six months prior to that,

00:07:10 or one year prior to that, we still

00:07:11 had issues on economic recovery in India.

00:07:14 There are a lot of sectors which were suffering with NBFC

00:07:17 crisis, islet-first crisis, prior to that,

00:07:20 Demand, RERA, GST, everything that

00:07:23 impeded the growth to a large extent

00:07:25 in the first year of Modi versus after that.

00:07:28 And therefore, the entire results of the structural

00:07:30 reforms that were coming in were not being seen in the numbers.

00:07:33 So economics-wise and industry-wise,

00:07:36 it was suffering to some extent.

00:07:38 And then you had COVID, because when we appeared last year,

00:07:41 also, we raised a circumspect of this year, what would happen.

00:07:44 But what happened ultimately is it became worse

00:07:46 because of COVID reasons.

00:07:48 And before COVID, obviously, you had--

00:07:50 within COVID, again, you have the Templeton crisis.

00:07:53 So there was the credit risk, then Templeton.

00:07:55 So all this compounded in itself and created

00:07:58 a lot of issues in the marketplace on the debt.

00:08:00 However, as you use the word exuberance,

00:08:03 we don't really see that there's exuberance in the market.

00:08:07 Because of liquidity reasons, the market

00:08:09 is at a certain level.

00:08:12 But we don't see client exuberance.

00:08:15 So that's very clear.

00:08:17 Clients are trying to be on the safer side,

00:08:19 more on the large cap, fundamentally strong stocks.

00:08:22 And if you see the kind of investment

00:08:24 that happened from the FIs also, more than 6 million or so

00:08:27 this year, has mainly gone to fewer stocks.

00:08:30 If you see the Nifty performance,

00:08:31 it's been minus 3.5 or so.

00:08:33 But if you take few stocks, they've

00:08:35 really done extremely well.

00:08:37 Few PMSs have been able to beat, but very few mutual funds

00:08:41 have been able to beat these benchmarks,

00:08:43 primarily because it's got selectively

00:08:45 gone into fewer stocks.

00:08:47 Same way, some PMSs have done well.

00:08:50 So I think equity market as a whole

00:08:52 is still with a P forwards of around 24, 25,

00:08:57 which is very rich, it looks on the face of it.

00:09:00 But with earnings gradually improving.

00:09:03 Now, what's your outlook on the earnings?

00:09:05 And what's the outlook on the economy as such?

00:09:08 If you see IMF, if you see RBI, all the estimates

00:09:10 show the worldwide.

00:09:12 It would come down to around 49% or so this year.

00:09:16 And the next year, it should show a growth of 5 or--

00:09:19 approximately that value.

00:09:21 So you will almost recover by 2022 globally.

00:09:26 If you see India's numbers also, minus 8% to 10%,

00:09:29 and then you have a plus 9% or so.

00:09:32 So that basically means that by '21 end or '22 mid,

00:09:35 somewhere we'll come to the old pre-COVID levels.

00:09:38 Having said that, the markets normally

00:09:41 rally before or after the trends are already

00:09:44 seen in the economics.

00:09:45 So you see now more moving towards positivity,

00:09:49 primarily because clients are optimistic,

00:09:51 because they've always been optimistic even in this crisis.

00:09:54 Except that they've taken over their own money

00:09:56 and moved flight to safety.

00:09:57 They've gone into safer products.

00:10:00 But in equities, the allocation from our clients

00:10:03 haven't gone down.

00:10:04 And equities will flow in, especially

00:10:07 on institutional side.

00:10:08 You see massive inflows coming in on the equities

00:10:11 as there's liquidity globally.

00:10:14 So that would be the scenario.

00:10:15 The only reason we would say this optimism may not play out

00:10:19 is, one, the vaccine not gets delayed by one or two months.

00:10:23 It would delay furthermore.

00:10:25 It may not come in by the first quarter.

00:10:27 It may come in by the third quarter or so.

00:10:30 And basically, seeing that vaccine coming in

00:10:33 and the growth of how the COVID relapse happens--

00:10:38 like in European markets and the US,

00:10:40 you're seeing the economy getting affected again

00:10:42 because there's lockdown again in the second phase.

00:10:45 You will see how India plays it out.

00:10:46 For Indian local markets, we need

00:10:48 to see because now, again, the COVID numbers have come down.

00:10:51 The recovery rates have improved.

00:10:53 The death is still at 1.5%, with a not so high rate or so.

00:10:57 So if you see those kind of dynamics,

00:11:01 if the COVID situation doesn't really deteriorate further

00:11:04 and we don't get a relapse again in the next six months or so,

00:11:07 and by the time you get the vaccine in,

00:11:10 then the next question will be whether vaccine spread,

00:11:12 the effectiveness of vaccine, and the ability

00:11:15 to really stream it out to everyone.

00:11:17 So I think there's a lot of things dependent on the COVID

00:11:20 result. But if this is stable and positive,

00:11:25 you would see optimism from the industry

00:11:28 will remain in the marketplace.

00:11:30 The market is overrun, but it will remain.

00:11:32 So we wouldn't expect a staggering increase

00:11:34 in the equity in the next three years.

00:11:36 But we'd say on the average around 10% to 12% of returns

00:11:40 or so, you could look at the next three

00:11:41 years in the equity market.

00:11:43 So the market will still have a risk premium on the debt.

00:11:45 And we would advise our clients to stick

00:11:48 to the structural asset allocation,

00:11:50 with the strategic asset allocation

00:11:52 which they've decided on, and continue with it.

00:11:54 So our game will be, even in these crisis times,

00:11:58 although we went a little more neutral on equities,

00:12:01 a little more conservative on equities,

00:12:02 we are now neutral on equities.

00:12:04 And going forward, I think it can only

00:12:06 improve from here, not really decelerate.

00:12:10 Sure.

00:12:12 Rajesh, how is-- two questions also related to this.

00:12:16 One is that, how important do you

00:12:18 think the COVID conversation really

00:12:20 is in shaping markets over the next one year?

00:12:24 And second, how is this liquidity angle really

00:12:27 playing out in India, considering that interest

00:12:30 rates have come down substantially,

00:12:33 and that was seen to be a great trigger for people

00:12:35 to look at equities as an alternate investment class?

00:12:39 But now that they have really gone up quite sharply

00:12:43 in a very short time period, are people worried,

00:12:46 or are they willing to give it a shot?

00:12:49 What is the sentiment really like?

00:12:52 So with regards to the COVID question,

00:12:55 whether there is another lockdown,

00:12:57 or how much time the vaccine takes,

00:12:59 very few have the right answer.

00:13:01 And there could be still situations

00:13:03 of economies starting, stopping, going into lockdown,

00:13:07 partially, completely, depending on each country's

00:13:11 own imperatives.

00:13:13 But this last six, eight months, 10 months,

00:13:17 is not like a normal recession, where prior problems have

00:13:21 to be fixed and overcome.

00:13:23 While most market recoveries depend

00:13:25 on overcoming some sort of imbalance or defect

00:13:29 in the markets, like what happened

00:13:30 in the dot-com mania in the '90s or subprime mortgages in 2008,

00:13:35 the current bear market--

00:13:36 or I would say not bear market anymore,

00:13:38 but the current last six months market--

00:13:41 was primarily due to the clampdown effects

00:13:44 to slow the spread of COVID-19.

00:13:46 So you think of it like the economy like a car,

00:13:49 that's come to a complete stop.

00:13:52 Now, is the car stopped because there's something broken

00:13:54 in the engine or the electrical system,

00:13:57 and that could take time to repair?

00:13:59 Or has the car stopped because you've just taken the pedal--

00:14:03 your foot off the pedal?

00:14:05 And because if it's a latter, then all you have to do

00:14:08 is to put the foot back on the brake, and you come back.

00:14:12 And as even we've started unlocking the economy

00:14:17 and most countries have, you can see all on a fundamental basis

00:14:20 results of companies.

00:14:22 All have started to improve.

00:14:24 Various factors, the PMI, the electrical consumption,

00:14:27 power consumption, so all have started

00:14:30 to show an upward trend.

00:14:31 So that has, of course, changed the sentiment

00:14:34 when it comes to investing.

00:14:38 Secondly, liquidity.

00:14:42 All of us spoke about liquidity, but if you just

00:14:44 look at the numbers, it's amazing this time.

00:14:48 About $5 to $6 trillion of direct fiscal stimulus

00:14:53 has been announced by the top 20 economies.

00:14:56 Now, this is close to 7% of 2019 global GDP.

00:15:01 And you'll be surprised, the same figure in 2008

00:15:05 when the financial crisis happened

00:15:07 was only about 3%, 3 and 1/2% of the global GDP at that time.

00:15:11 So you're talking about 2 and 1/2 times,

00:15:12 3 times the amount of money that got printed in 2008

00:15:16 has got printed this time.

00:15:18 Now, what's that going to do?

00:15:19 When you have so much of liquidity,

00:15:21 you have low interest rates, you are

00:15:24 going to see money moving into other asset classes.

00:15:27 So equities, gold, technology through private equity

00:15:32 or listed space, or even real estate,

00:15:34 these are seeing huge inflows.

00:15:36 And in equities, then you can't ignore India

00:15:38 because our structural story hasn't gone.

00:15:40 So short-term impact or political impact

00:15:44 or economic impact, maybe short-term

00:15:46 there'll be some imbalances.

00:15:47 But if you still think about 5, 10 years,

00:15:50 India, China are going to be two big markets.

00:15:52 And China and US are going to be two large consuming

00:15:55 markets along with India.

00:15:57 So money will definitely flow in.

00:16:00 And COVID impact is just a function

00:16:03 of when the vaccine comes out or when things become better.

00:16:07 So that may take six months or a year.

00:16:09 But I think that's being discounted.

00:16:11 Today, you have what the markets assume.

00:16:15 Definitely FY21 is a washout.

00:16:19 India is going to degrow 10%, 11% GDP.

00:16:22 The world is degrowing.

00:16:24 So people have stopped looking at this year.

00:16:26 What everyone is looking at is how are the next two years

00:16:30 going to look?

00:16:30 Because there are many companies and businesses

00:16:33 that have actually benefited because of COVID.

00:16:36 Due to COVID, there have been industries

00:16:38 that have benefited.

00:16:39 There's consolidation within industries

00:16:41 where the weaker players have got left out.

00:16:44 And you have to also remember in valuations,

00:16:46 a big factor is your finance cost.

00:16:49 And the way the interest rates have come down,

00:16:51 1% drop in interest has a 10% impact on PAT.

00:16:55 So of course, going forward, every quarter,

00:16:58 you'll see better fundamentals also.

00:17:00 So improving fundamentals and improving economy,

00:17:04 huge amount of liquidity, and better sentiments

00:17:08 is what will keep the market going.

00:17:10 It has run up.

00:17:12 But it optically looks as if it's run up

00:17:14 because there are seven, eight basic stocks that

00:17:17 have gone through the roof.

00:17:18 And they have contributed.

00:17:19 But largely, there's still a good amount of value left

00:17:23 if you look at valuations from a FY20 to FY23 perspective.

00:17:27 So most of our clients have taken this opportunity.

00:17:31 We have been overweight on equities

00:17:32 for the last six months.

00:17:34 We've gone neutral now.

00:17:35 But last six months, we've been overweight

00:17:38 and have been staggering and using this opportunity

00:17:40 to keep investing in equity.

00:17:42 And I don't think that trend is going

00:17:43 to go away because many business owners have liquidity.

00:17:47 They've saved money.

00:17:48 They've not traveled.

00:17:50 The businesses haven't required money.

00:17:52 And all of that is flowing into now equities.

00:17:55 Irrespective of us thinking it's run up too fast,

00:17:58 you still see decent inflows coming into equities.

00:18:02 ASHISH KALSI: Ashish, I just want to take off with Rajesh.

00:18:05 Earlier, six months back, we were

00:18:07 saying that FY21 is discounted.

00:18:08 Now FY22.

00:18:09 Now we are talking of FY23.

00:18:11 So since you are kind of circumspect,

00:18:14 so how are you viewing the whole thing?

00:18:16 How long can anyone keep justifying

00:18:19 that let's keep pushing?

00:18:21 Now it will be FY24.

00:18:23 How comfortable are you?

00:18:26 RAJESH SHARMA: See, FY21 obviously is a unique year.

00:18:31 I think once in a 100-year situation,

00:18:33 you indeed have to write it off.

00:18:35 FY22, if things normalize and if you get the vaccine

00:18:38 and things start going on, I think

00:18:40 things will start normalizing.

00:18:42 And you will start seeing business activity getting

00:18:45 normalized and everything getting normalized.

00:18:47 But you will also see then interest rates

00:18:50 starting to go up.

00:18:52 See, if the economy starts doing well,

00:18:55 if inflation starts kicking in, then these things

00:18:58 will start changing.

00:19:00 And as I think Rajesh, Atin, Ashish all pointed out,

00:19:05 markets are actually ahead of all of us.

00:19:08 And once you have an inkling of things changing,

00:19:12 you never know how things will get discounted.

00:19:15 So our sense always has been that you

00:19:18 have to respect valuations.

00:19:21 You can't really predict, because valuations

00:19:24 will teach you that you need to respect them

00:19:27 at all periods of time.

00:19:29 Last six months gave a good opportunity for clients

00:19:32 to increase their allocations.

00:19:34 I actually think that if we get an opportunity of something

00:19:38 going untoward in the economy and markets tanking back again,

00:19:42 it's once again a very good opportunity

00:19:44 to increase allocation.

00:19:45 Because structurally, these things

00:19:47 are not going to change.

00:19:49 It may take a year.

00:19:50 It may take six months.

00:19:52 You never know.

00:19:52 But once-- and things have to normalize.

00:19:55 It's not the end of the world.

00:19:56 So these are once in a lifetime opportunities

00:19:58 when you get cheap kind of situations

00:20:03 where you can allocate excessive money, which was there

00:20:06 in, let's say, 10, 15, 20 days of March and April,

00:20:10 after which it never gave anybody a chance.

00:20:13 And if you get that kind of a chance again,

00:20:15 you increase your allocation substantially.

00:20:17 But if it ranges between 12,500, 10,500,

00:20:22 we keep shifting our allocations from overweight to underweight.

00:20:25 Right now, we would be mildly underweight, about 10-odd

00:20:29 percent from our strategic asset allocation.

00:20:32 Since that time, we've crossed about 11,700, 11,800 levels.

00:20:37 And we also hope that market keeps going up

00:20:41 like everybody else.

00:20:42 It's good for us.

00:20:43 But over time, I've just seen you need to respect valuation.

00:20:47 You never know where that unknown devil

00:20:49 is sitting to come and hit you.

00:20:53 So in that kind of a scenario, where do you see value?

00:20:55 I mean, is there any pockets that you see

00:20:58 where you can go and hide, if at all?

00:21:02 Actually, broader markets, the up moves

00:21:06 have been really polarized.

00:21:08 And broader markets, you still have value available,

00:21:11 especially in mid and small caps.

00:21:14 But you have to have the ability to withstand volatility.

00:21:18 Because if things go wrong, then they

00:21:20 take a significant amount of beating

00:21:22 as compared to large caps.

00:21:24 But I think that is where the value lies.

00:21:26 Because most of the large money has gone behind few stocks.

00:21:30 So at 50p, 60p levels, you don't get value.

00:21:33 I am still bullish on IT, I would say,

00:21:37 and continue to be bullish on pharma,

00:21:40 although pharma has had a run up.

00:21:42 But it was after a five-year period of a lull

00:21:46 that you've seen some pharma run up happening.

00:21:49 And IT has been reasonably doing well.

00:21:51 And you've seen IT companies, which

00:21:54 are extremely conservative and not, in that sense,

00:21:58 extremely bullish.

00:21:59 They're coming out in the market and giving a two, three year

00:22:03 optimistic scenario.

00:22:04 You don't see companies like likes of TCS and Accenture

00:22:08 normally giving bullish outlook.

00:22:11 You've seen these companies talking

00:22:13 about two, three years of activity

00:22:14 happening in six months.

00:22:15 That gives us significant amount of confidence,

00:22:18 at least in these two sectors.

00:22:21 And broader market, I think, mid and small cap.

00:22:24 So I think in the equity side, this

00:22:26 is where we would largely see value.

00:22:29 Some green shoots in real estate is visible,

00:22:32 but still to play out.

00:22:33 I think a couple of things working out for real estate,

00:22:36 like Ashish pointed out, home loans below 7%.

00:22:40 I don't know if you remember, last it was 2007.

00:22:43 So it's about 13 years now.

00:22:46 And if you see the gap between an FD rate and residential

00:22:50 and rental yields, we've been cribbing for last 10 years.

00:22:54 It's at 2.5%, 3%.

00:22:56 Now, decent FD rates are about 4%, 4.5%.

00:23:00 So the gap between rental and FD and mortgage and income levels

00:23:06 going up and real estate prices remaining stagnant for 10

00:23:09 years is the ultimate chemistry for real estate

00:23:12 to start working.

00:23:13 And I think government bringing down the stamp duty--

00:23:17 at least, Bombay, I'm seeing action.

00:23:20 I mean, you do channel checks and you talk to brokers.

00:23:22 You see even luxury properties movement is happening.

00:23:25 So I think some amount of stuff will also

00:23:27 happen on the real estate side.

00:23:28 So it'll all be linked.

00:23:30 One thing start working, the other thing start working.

00:23:32 If real estate in general starts doing well,

00:23:35 it has a huge positive impact on the overall economy.

00:23:39 So let's see how it goes.

00:23:42 [INTERPOSING VOICES]

00:23:44 Just to go back on that point, Ashish,

00:23:46 that you talked about the right chemistry in terms

00:23:48 of real estate, I thought the mathematic is more about what

00:23:54 is the EMI you bear versus the rent for original demand

00:23:59 to come up.

00:24:00 And that equation, considering that real estate prices

00:24:03 have still not come down sharply,

00:24:05 continues to be very unfavorable from a buyer's perspective.

00:24:09 Would you agree?

00:24:11 I'll actually partially agree.

00:24:13 Because if you really go out today in the market

00:24:16 and you sit, as they say, with cash on the table--

00:24:19 actually, it's not cash.

00:24:21 It's check on the table.

00:24:22 You see, even in the last six months,

00:24:25 you can see a 10% decline.

00:24:27 And if you want to see the price per se,

00:24:31 I think from 2013 and/or 2014 to 2020, it has been stagnant.

00:24:38 So there was a 10x run up from 2003 to 2013.

00:24:42 But from 2013-- so if you do a CAGR, a 17-year CAGR,

00:24:46 you come down to 7%, 8%, which is the long-term real estate

00:24:50 return.

00:24:51 So now if you see the difference between mortgage--

00:24:53 I mean, a reasonable mortgage is 6 and 1/2,

00:24:56 and rental is, say, 3.

00:24:57 You need a 3 and 1/2% capital appreciation

00:25:00 to plug that gap.

00:25:02 This gap, what I'm trying to say,

00:25:04 is the narrowest in the last 10, 15 years.

00:25:08 The ingredients--

00:25:09 3% rental is--

00:25:10 I mean, is average rental yield--

00:25:13 I mean, I know real estate is a very granular market.

00:25:15 You have to look at market by market.

00:25:17 But even 3% looks a little steep to me.

00:25:21 After the price correction, Malakshmi, no.

00:25:23 There will be areas--

00:25:24 if you go to mature markets, where there's hardly

00:25:28 any development happening and only end-use buyers are going,

00:25:31 let's say, to take an analogy, Bandra West in Bombay.

00:25:36 You could get 2 and 1/2.

00:25:37 But the range is 2 and 1/2 to 3 and 1/2.

00:25:39 But if you go somewhere to a close proximity to BKC,

00:25:43 you could get up to 3.754.

00:25:46 So obviously, it is granular.

00:25:48 But there are pockets.

00:25:49 It's like equities, right?

00:25:51 I mean, equities also is granular.

00:25:53 It's just that you have to pick the sector, pick the stock.

00:25:55 Same thing operates in real estate.

00:25:59 You can't paint the entire thing with the same brush.

00:26:02 So you would say we are in a territory from where

00:26:06 demand can get--

00:26:07 Yes.

00:26:08 My view is that we are seeing bottoming out of real estate.

00:26:12 And you may see pickup from here.

00:26:15 Because in the last two months, the kind of activity

00:26:19 which we are seeing, I have not seen in the last five, six

00:26:22 years.

00:26:23 Sure.

00:26:24 Rajesh, you want to comment on that?

00:26:26 Yes.

00:26:26 Yes, please.

00:26:29 So he's absolutely right.

00:26:31 Last three to six months, at least in low-cost housing

00:26:35 and mid-income housing, because of all the factors--

00:26:38 low interest rates, low loan rates,

00:26:42 and also prices having been calibrated by many,

00:26:45 at least for the new projects, has seen an uptick in demand.

00:26:49 I'll give you a small example.

00:26:50 A place like Thana, Bhivandi, new project of Dosti,

00:26:54 1,800 flats, in one month, he sold 60%, one month.

00:26:58 But the ticket size of each flat was 25 lakhs.

00:27:02 So you are seeing some pent-up demand coming back

00:27:06 because of low rates, because of the very fact

00:27:09 that prices have corrected.

00:27:11 And if you sit across the table with developers,

00:27:13 you're getting deals.

00:27:14 Even on the luxury side, a lot of pent-up demand

00:27:19 has suddenly come about where people

00:27:21 are finding better deals.

00:27:22 And they're sitting across the table and getting 20%,

00:27:24 30% off from the original rates and doing transactions.

00:27:28 So it's one area where many changes happened

00:27:31 over the last three, four years, right from RERA to GST

00:27:35 to NBFC crisis to developer crisis.

00:27:39 And now, you are seeing some consolidation.

00:27:43 You are aware of which builder has survived,

00:27:48 will not go belly up, someone who will at least execute

00:27:51 and deliver.

00:27:52 Whenever there is a RERA number, you

00:27:53 are seeing demand come back.

00:27:56 On the fund side also, we are noticing a big trend

00:27:59 because we run real estate funds.

00:28:01 Earlier, the stress was with developers.

00:28:04 Now, the stress actually has moved to the lenders.

00:28:07 So banks and NBFCs are approaching us

00:28:09 to take over projects because they

00:28:12 want to get that loan off their balance sheet.

00:28:15 And they're willing to take a haircut

00:28:16 and give it to you at 40%, 50% discount.

00:28:20 So we are finding another opportunity

00:28:22 from a fund perspective.

00:28:23 We've just gone ahead and launched another real estate

00:28:25 fund because we have these deals from financial institutions

00:28:30 where you can bring in a good, credible developer.

00:28:34 You're getting a deal at 50%, 60% haircut from today's prices.

00:28:38 And you can still offer very good returns to clients.

00:28:41 So on both sides, I see--

00:28:43 and lastly, on the stock exchange real reality index,

00:28:46 if you just go to three months back,

00:28:47 was actually one of the best performing indices

00:28:50 for the last 6, 12 months, clearly

00:28:52 because of consolidation happening

00:28:53 with more solvent players with more larger scale aspirations

00:28:59 of only focusing on real estate.

00:29:01 So in all these three places, we are seeing positive trend.

00:29:05 SRIRAM SAROOP: If I can just share my two bits on it,

00:29:09 for whatever it's worth.

00:29:10 So if you see, there is very serious foreign money

00:29:15 which is coming into the big real estate projects.

00:29:17 You've seen the kind of money Brookfield

00:29:19 has put into India, Blackstone has put into India.

00:29:22 Almost every 15 to 20 days, there

00:29:24 is an announcement of one of the big foreign players

00:29:27 coming and picking up a chunk of land or reeds or assets.

00:29:32 So I feel that the cost of financing for the bigger guys

00:29:37 and builders will come down significantly.

00:29:39 The reed structure has kicked off.

00:29:41 So you had Embassy Reed, which was successful.

00:29:43 That was followed again by Mindspace.

00:29:45 Now, we are aware of many such people

00:29:47 who are working on similar structures.

00:29:49 So one is that there is very serious international capital

00:29:53 which is looking at investing in Indian real estate.

00:29:56 And those deals, you will see money continue to come in.

00:30:00 So suddenly, there's a source of funding which is coming.

00:30:02 So a lot of activity will be there in that area.

00:30:05 Now, if you leave certain pockets of Bombay,

00:30:08 the rest of India, there has already been a correction.

00:30:10 Whether it's Gurgaon, whether it's Bangalore,

00:30:12 whether it's Hyderabad, whether it's Chennai,

00:30:14 already a correction has taken place.

00:30:17 And where you're getting good deals

00:30:19 is where there is a builder or a developer.

00:30:21 Then you can sit across the table and negotiate a deal

00:30:23 and then do the deal.

00:30:25 Even what the Maharashtra government has done,

00:30:28 in terms of tax, bringing the stamp duty down,

00:30:30 we think is a fairly good move.

00:30:32 So with interest rates coming down,

00:30:34 I think what Ashish and Gajesh have said,

00:30:36 we see a lot of money moving here.

00:30:38 Other thing is, anecdotally, clients

00:30:40 have been disillusioned with their fixed income market.

00:30:43 So I find some of them again going back

00:30:45 into real estate out there, because the kind of volatility

00:30:49 we've seen in fixed income markets in the last two years.

00:30:52 So a lot of investors who came back

00:30:54 to because of financialization of the economy, some of them,

00:30:58 I again find them going back there.

00:31:01 But those who are in trouble, I think for them,

00:31:03 the story is not going to be good,

00:31:05 because there is nobody who's here to bail you out and take

00:31:08 a distress project and all.

00:31:10 So I mean, of course, recently, Edelweiss

00:31:12 raised a distress debt fund.

00:31:14 Everstone has raised a distress debt fund.

00:31:16 So overall, I think this sector should do well.

00:31:19 Like Ashish said, my personal sense,

00:31:22 I mean, as Julius said, we don't cover real estate in India.

00:31:25 Globally, we do a lot of real estate products.

00:31:27 But in India, I personally feel that you

00:31:31 will see a recovery coming into this sector.

00:31:34 And mainly, this interest rate is a big trigger.

00:31:36 It's really a big trigger.

00:31:37 I mean, today, a common man can go and borrow money

00:31:40 at sub-7.

00:31:41 So it's not available to an Ashish or a Rajesh.

00:31:43 But even if anyone walks across--

00:31:46 like I had an employee of mine who recently came to me

00:31:48 and said he's looking at buying a house.

00:31:50 And he said he's getting a loan at 690,

00:31:52 which I think is a very, very attractive rate,

00:31:55 like Ashish mentioned.

00:31:56 I didn't realize we are back to 2007 levels.

00:31:58 So thank you for that.

00:31:59 Yeah, 675.

00:32:00 Today in the papers, I saw 675.

00:32:02 Somebody's on it.

00:32:02 Yeah, plus there are some tax benefits which

00:32:05 are available and all that.

00:32:06 Mahalaxmi, the area you're looking at buying

00:32:09 must be really premium.

00:32:10 So that's the challenge.

00:32:11 [LAUGHTER]

00:32:13 So the joke is--

00:32:14 No, but to tell you the truth, I mean, where I am living,

00:32:19 prices have not come down.

00:32:20 This is Hidangandhani Thane.

00:32:21 Where do you stay?

00:32:22 [INAUDIBLE]

00:32:23 OK.

00:32:24 Hidangandhani Thane.

00:32:25 Prices have not come down at all.

00:32:28 My sense is that if you want to buy Mount Meri, where

00:32:31 there's collector's land and--

00:32:32 I mean, you will have to pay a premium.

00:32:35 But generally, there is a sense that there is a correction.

00:32:40 And that's a general sense.

00:32:41 But will a real estate boom come and all, difficult to say.

00:32:44 I mean, that's difficult to say.

00:32:45 So if you see four-wheelers, pickup has been very good.

00:32:48 If you see this festive season, two-wheelers,

00:32:50 pickup has not been so much.

00:32:51 So jury will be out.

00:32:53 But generally, I think numbers may positively surprise us,

00:32:57 unless something extenuating happens.

00:33:00 But I'll be--

00:33:01 On valuations, I agree with Ashish

00:33:03 that it has run up very sharply.

00:33:04 So tactically, we have booked profits.

00:33:07 What he's saying is absolutely right.

00:33:09 The market has doubled, actually.

00:33:11 If you see, the market has doubled in a span of six

00:33:13 months.

00:33:13 So there, we have done some profit-taking.

00:33:16 But generally, we are still invest on big lands.

00:33:19 And now, we have REIT as a category.

00:33:21 So whether it's--

00:33:22 I mean, it's not solicitation, but Embassy REIT, Mindspace,

00:33:27 IndieGrade.

00:33:27 These are the kind of products now

00:33:29 which are also there in client financial portfolios, which

00:33:31 was not there 12 to 18 months ago, or 24 months ago.

00:33:35 But are we underplaying the impact of contracting economy

00:33:38 job losses, the fact that you'll have a new work from home?

00:33:42 So that the part which was really doing well

00:33:45 was the commercial.

00:33:47 I mean, that is where all the money.

00:33:48 But now, suddenly, even that we are talking of people

00:33:50 working out of home.

00:33:51 So structurally, the things are not really going well

00:33:55 for that real estate.

00:33:58 So the guys who are on the ground

00:33:59 are Ashish and Rajesh, maybe on commercial.

00:34:03 Of course, Rajesh has seen a lot of pain.

00:34:07 Their promoters also invested in real estate.

00:34:09 So I think Rajesh understands that more than anybody else.

00:34:12 So maybe Rajesh and Ashish have a better place

00:34:14 to comment on that.

00:34:15 So real estate, work from home, has

00:34:19 both positives and negatives.

00:34:22 One of which seems to be a reality going forward,

00:34:25 many people want to get a little bit of space

00:34:28 and have maybe a slightly bigger house as compared

00:34:31 to where they were staying.

00:34:32 Because even today, we notice, while doing virtual calls,

00:34:36 some children running past, or sound of a cooker going off,

00:34:39 et cetera, et cetera.

00:34:40 So there is this need that if the world tomorrow,

00:34:43 going forward, will have a hybrid model in many cases.

00:34:47 You're aware, Standard Chartered, first institution,

00:34:50 yesterday I heard the announcement

00:34:51 that going forward, irrespective of COVID,

00:34:55 this hybrid model is now coming to place.

00:34:58 And what has happened to commercial?

00:34:59 On the commercial side, number one,

00:35:02 because of this requirement, this COVID thing

00:35:04 is not going away for at least a year, year and a half.

00:35:07 Sometimes even the space requirement is larger.

00:35:09 Number two, there are one industry

00:35:12 goes through a challenge.

00:35:13 There's another industry that comes up, which has requirements.

00:35:16 Suddenly foreign funds coming in, buying into real estate,

00:35:19 they need offices.

00:35:21 Suddenly you have the e-commerce platforms,

00:35:23 they are expanding at such a big pace, they need offices.

00:35:26 So it gets covered up.

00:35:27 And it's a function.

00:35:28 Commercial is a lot on supply, demand, location, which area,

00:35:33 how much supply, demand there is.

00:35:35 So we see commercial continuing to do well.

00:35:39 It's not going to go away.

00:35:40 There are many markets where there's hardly been any supply

00:35:43 over the last six, seven years.

00:35:45 There are certain markets where there's too much of supply,

00:35:48 and their prices will remain depressed.

00:35:51 But there too, A quality, triple A quality buildings

00:35:55 still command good tenants, and that those businesses

00:35:59 are growing.

00:36:00 And frankly, in India, even with tech guys,

00:36:02 and we speak to, while they've told their people to work out

00:36:08 of home, but the new business that they're getting in

00:36:10 is so dramatic in the tech space,

00:36:13 that they're actually hiring in big numbers.

00:36:15 The hiring will start another three months, six months.

00:36:19 You'll see many of these guys back to hiring in a big way.

00:36:21 So once again, the requirement will be there.

00:36:23 Because in India, someone who's earning $20,000, $30,000

00:36:27 still is not living in the best conditions at home

00:36:30 to do work effectively.

00:36:33 So it's not like the US or something else

00:36:36 where basically everyone has a hygiene standard of living.

00:36:39 Today in India, that's still a challenge.

00:36:41 So we continue to see good potential

00:36:44 on both sides, residential and commercial.

00:36:47 And with all the reforms that have come into real estate,

00:36:51 all the developers, either over-leveraged or gone.

00:36:56 They've gone belly up.

00:36:57 They'll sell their businesses.

00:36:59 They'll sell their projects.

00:37:00 They'll take a haircut and get out.

00:37:02 But all the serious players will actually benefit.

00:37:05 And they're benefiting even today.

00:37:07 So that's what we are seeing from or hearing in the--

00:37:10 ASHISH KALSI: But the inspiration

00:37:11 has not yet come in yet.

00:37:12 Because the inventory level continues

00:37:14 to be the highest in all the major markets.

00:37:16 I mean, we are talking of this final tipping point,

00:37:20 tipping point.

00:37:21 Now this is the worst.

00:37:22 I mean, how much more?

00:37:23 I mean, is that this--

00:37:25 what is delaying that whole collapse in price?

00:37:28 He said that he's got a 30% discount.

00:37:31 Can you generalize that and say that's

00:37:33 what it is across all of this?

00:37:36 Then the inventory should have been over quite quickly.

00:37:38 VINEET BHAN: It's not going to be over that easily.

00:37:41 Residential, there's a lot of supply

00:37:42 that had come in in various pockets.

00:37:44 Also, your economy has gone through two or three

00:37:46 years of challenge.

00:37:47 That creates uncertainty in the minds

00:37:49 of people who are home buyers.

00:37:51 So people want things to stabilize before they

00:37:54 start making the purchase.

00:37:55 Today, maybe the last six months has given them

00:37:57 an opportunity because of low cost of funds.

00:38:00 And generally, some places where discounts are happening.

00:38:03 But you will see over the next one or two years,

00:38:06 this inventory getting absorbed, especially

00:38:08 of the projects that have been completed.

00:38:13 Or you have more quality than the project

00:38:15 will get completed.

00:38:16 There's no doubt in my mind.

00:38:19 NISHANT DOLKIA: Vishal, people have lost faith

00:38:21 in an under-construction project.

00:38:24 So they are afraid to buy.

00:38:27 When I talk to builders, if you see Viveria,

00:38:32 Ravi Raija's group, I don't know what,

00:38:35 they continue to sell because they're

00:38:37 the investors assured that he will get his delivery.

00:38:40 So the challenge-- I'm telling you

00:38:43 my gut based on my conversation.

00:38:44 Like I said, we are not in the business of real estate

00:38:46 in India.

00:38:47 But the challenge is that people have lost

00:38:50 faith in under-development.

00:38:51 So they say, you get the building ready.

00:38:52 You're ready to deliver.

00:38:53 Then we are willing to purchase the flat.

00:38:57 And the view is not bullish.

00:38:59 But it is much better than what it was 12 or 18 months ago.

00:39:02 Because out of 100, 99 builders had gone out of business.

00:39:06 So it has never been so bad for the real estate industry.

00:39:09 Of course, Edelweiss knows it better than anybody else.

00:39:12 I think Ashish can comment best on this.

00:39:14 He's at the heart of the story.

00:39:15 ASHISH KALSI: I just wanted to add some insight

00:39:17 to it on the real estate.

00:39:19 Again, Deutsche Bank, as Ashish said, Julius Pehr doesn't.

00:39:21 We also don't advise clients on real estate.

00:39:24 But certain insights that we get from the lending side

00:39:26 of a book, right?

00:39:28 We get clients on the banking side and the lending side.

00:39:30 And one, I want to reinforce what Rajesh has said.

00:39:33 On promoter developers who are good promoter developers,

00:39:38 and settle, they are giving us a kind of an insight

00:39:41 that the market is starting to grow in the sense

00:39:45 their MNC clients are booking more space.

00:39:48 And they continue to add square feet to it on development.

00:39:53 So that's one area we've seen.

00:39:55 Because generally, they were the top end developers

00:39:57 only as promoter developers on the lending side.

00:40:00 And we feel that that positioning,

00:40:03 they are doing extremely well.

00:40:05 The question that normally that I ask them

00:40:07 is why there are people who are going belly up,

00:40:10 like Rajesh said, but they are not being supplemented

00:40:12 or taken over by these developers.

00:40:16 And why are they not doing it?

00:40:18 Because if it's coming so cheap.

00:40:19 So they feel the pricing is still not right,

00:40:22 in the sense that debt amounts are so high,

00:40:24 still to take over, it's still not worth.

00:40:27 So that's the second insight I would just like

00:40:29 to add to the group.

00:40:30 And this has to narrow down to an extent

00:40:32 that becomes really profitable or really good for them.

00:40:35 But Rajesh is feeling the real process

00:40:37 where he's saying a lot of people are coming to them

00:40:39 in the fund and also that is reality.

00:40:41 What I'm saying is that inside that these developers

00:40:43 are waiting for a certain little better equation

00:40:46 for them to really plunge in and take over.

00:40:48 So that's the second.

00:40:49 Third is I believe this micro markets

00:40:52 have started picking up, especially on the commercial side.

00:40:55 On the commercial side, it's very clear

00:40:57 because we see a lot of HNI clients going directly into it

00:41:01 and actually sniffing for deals,

00:41:05 which are very economical for them at this point of time.

00:41:09 So they get it like a haircut.

00:41:10 So they're looking for that.

00:41:12 So that's a third insight.

00:41:14 So I think real estate, while I don't see it really coming up

00:41:18 to a level where it can be a secular movement

00:41:20 on real estate and people, as an investor,

00:41:22 you can look at it, but there are opportunities

00:41:24 coming up with good developers like MSC and Wagers

00:41:27 and all coming up in REIT.

00:41:28 So investors could look at it.

00:41:30 So from a wealth management client point of view,

00:41:32 REITs are a good bet, a debt or a debt plus.

00:41:35 So I think that's what is important for us,

00:41:38 for our kind of clients.

00:41:40 - Yeah, Ashish, how bullish are we on REIT?

00:41:44 - You can have the last word.

00:41:45 - On REIT?

00:41:46 - On real estate, yeah.

00:41:50 - So it has to be looked at in-

00:41:53 - I've seen a couple of developers also being dragged

00:41:55 to the bankruptcy court.

00:41:57 - So all that leads to bottom of the cycle,

00:42:00 is what we feel.

00:42:02 See, the worse the sector gets,

00:42:04 the more upside it can bring to the table.

00:42:08 See, the way you have to look at it, Keshav,

00:42:09 is just look at all the asset classes right now.

00:42:13 You invest in debt, what will you get?

00:42:18 You invest in equity at these valuations,

00:42:21 what will you get?

00:42:22 You invest in a completed project at a discount,

00:42:26 good deal in real estate, what will you get?

00:42:29 And then you can take a call

00:42:31 in terms of comparable returns which one can make.

00:42:35 And I would also agree that the REIT

00:42:39 as a particular category,

00:42:40 obviously there is overhang of what is going to happen

00:42:42 to commercial real estate and all.

00:42:44 And I think it's really, really too early

00:42:46 to make a judgment that commercial is gone

00:42:50 and work from home will take over.

00:42:52 Human being is a social animal.

00:42:54 I mean, you cannot continue to operate from home

00:42:58 and there are multiple factors which will come to play.

00:43:01 Call center executives, and these are real life examples,

00:43:04 they don't have equipment

00:43:06 or the infrastructure in their residence

00:43:09 to be able to conduct their businesses.

00:43:11 There are data privacy issues

00:43:14 which BPO employees have to face.

00:43:16 So these are not easy answers.

00:43:18 So we look at certain white-collared segments.

00:43:21 We are not the population

00:43:23 who consume the commercial real estate in bulk.

00:43:26 There are other categories.

00:43:28 So there are arguments on both sides

00:43:31 and there is offtake happening.

00:43:33 I mean, I was really surprised how Embassy REIT

00:43:36 and Mindspace have held on to their prices.

00:43:39 Obviously, Embassy had gone 400 plus,

00:43:41 has come down to that 400 plus was,

00:43:43 giving a yield of three, three and a half, 4%,

00:43:46 which was unreasonable.

00:43:47 Now it's come down to a level

00:43:48 where it is giving a reasonable yield of about 6%.

00:43:52 But it's holding on.

00:43:53 Their rental collections are more than 95, 97%.

00:43:57 So we'll have to see how commercial plays out.

00:44:00 And commercial to my mind

00:44:02 is always an alternative to fixed income

00:44:04 because the yields are around six, 7%.

00:44:07 If they go up very high,

00:44:09 the end user can actually borrow and put his own space.

00:44:13 So the rates will,

00:44:14 the rental yields in commercial

00:44:15 will always hover around fixed income yields.

00:44:18 And therefore the upside from capital appreciation

00:44:21 will be muted.

00:44:22 Residential behaves in a different manner.

00:44:24 Residential is like equity.

00:44:25 Right?

00:44:27 There are periods where you will go through lull

00:44:29 and when you see upside, you get an upside.

00:44:31 So I'm not saying that you will see

00:44:33 what you saw between 2003 to 2010.

00:44:36 Don't get me wrong.

00:44:37 I mean, under no circumstance is where we are,

00:44:40 but I'm also not seeing what we saw from 2013 to 2020.

00:44:44 I don't see that seven years from now,

00:44:48 real estate will underperform debt.

00:44:51 Where debt for a seven year period

00:44:53 will not give you more than 4.5%, 5%.

00:44:57 Right?

00:44:58 Because in debt,

00:44:58 we, our customers unfortunately tend to look at

00:45:02 what is the past six month and one year returns.

00:45:05 Whereas that doesn't count.

00:45:06 You have to see what will you make going forward from here.

00:45:09 And if we say that, you know, another year or so,

00:45:12 we are going to be in a recessionary or a reflationary zone

00:45:16 where debt will give returns

00:45:17 because interest rates will go down.

00:45:19 Thereafter, if they start picking up,

00:45:21 your 4.5 year return from debt

00:45:23 will not be very attractive from here.

00:45:25 And that's our view.

00:45:27 In that context,

00:45:28 you have to see where does real estate fit in.

00:45:30 Unfortunately, there are not too many

00:45:32 financial products right now

00:45:34 because of the way the sector has behaved

00:45:35 over the last few years.

00:45:37 So clients are not able to participate.

00:45:39 So they have to go and take end units,

00:45:41 which most of us don't operate in.

00:45:44 - That sort of, you just led to the next question,

00:45:48 which is, you know, how is debt looking?

00:45:50 Because one, the interest rates have been

00:45:54 very, very favorable last one year.

00:45:56 It's been just going down.

00:45:58 In fact, for the last few years,

00:46:00 it's been just going down.

00:46:01 Now we have almost,

00:46:04 I don't know if we have hit the bottom,

00:46:06 but I would like to think we have already hit the bottom.

00:46:08 Second, there is COVID related stress,

00:46:12 which of course all the banks are now taking

00:46:15 separate provisions for COVID related stress, et cetera.

00:46:19 But is the worst really over in terms of defaults

00:46:23 and asset quality and stuff like that?

00:46:25 So therefore, what would be the outlook

00:46:28 for debt funds be over the next one year?

00:46:31 - You want me to answer?

00:46:34 - Yeah, sure.

00:46:36 - So I see AAA debt funds,

00:46:40 I think there's hardly anything left on the table.

00:46:44 People can add.

00:46:45 I mean, I have not seen these kinds of returns

00:46:48 in my wealth management working life, so to speak.

00:46:52 People have unfortunately started adding

00:46:57 duration willy-nilly,

00:46:59 because the short end of the curve has,

00:47:01 you know, gotten so suppressed

00:47:04 and the term spread has widened.

00:47:06 And the term spread is really wide right now

00:47:09 that people unknowingly are taking a duration risk.

00:47:12 They are taking seven year, eight year,

00:47:15 nine year, 10 year products,

00:47:16 because even on a one, two, three month period,

00:47:19 it's showing a reasonable MTM.

00:47:21 But it turns at a point in time it turns.

00:47:24 So one needs to be quick to book profits there,

00:47:29 because once the cycle turns,

00:47:30 it will give a significant amount of pain.

00:47:32 Unless somebody is holding a roll down product.

00:47:36 You know, something like a 10 year roll down,

00:47:39 eight year roll down, that's fine.

00:47:40 That's okay.

00:47:41 That's like a FMP.

00:47:42 You will make what you've entered with.

00:47:44 You have to ignore the mark to market implications

00:47:47 in the interim.

00:47:48 But if you're in an open ended fund

00:47:50 and you're going into duration,

00:47:51 I think on a temporary basis,

00:47:54 three months, six months, nine months,

00:47:56 you may still make money.

00:47:58 But then you should be quick to move back

00:47:59 because when the cycle turns,

00:48:01 you will see negative returns.

00:48:03 There are some pockets,

00:48:05 although I mean, it's a controversial one,

00:48:08 but there are some pockets which are emerging

00:48:11 in credit funds, where we feel value could emerge.

00:48:16 But again, with a pinch of salt,

00:48:18 people who can take on losses, volatility,

00:48:21 should go into it.

00:48:22 Because I don't want a situation where clients,

00:48:24 you know, because of absence of yield,

00:48:27 start taking undue risk.

00:48:29 Your debt is supposed to give you your capital

00:48:32 and interest back.

00:48:34 One should not unnecessarily take that 25, 50 basis points

00:48:38 extra and risk the whole capital.

00:48:40 But there may be some pockets which could emerge

00:48:43 and some part of the allocation could go there.

00:48:45 REITs have already been spoken about.

00:48:49 I think there are, obviously,

00:48:51 if commercial goes through a disaster,

00:48:52 they will have an impact.

00:48:53 But if it stays the way it is,

00:48:55 I think it is one of the best places to be right now.

00:48:59 There is only one, you know,

00:49:01 in-bid asset in India, which has given stellar returns.

00:49:05 I think it bottomed at 85.

00:49:07 Right now, the price of Indigred is 110.

00:49:10 Plus it has given a 12% annual, you know, distribution.

00:49:15 So it has given stellar returns.

00:49:16 I think more such assets will come into play.

00:49:19 One area which could emerge for Ultra HNIs,

00:49:22 which we'll see activity, not seen success till now,

00:49:24 is, you know, low volatility, long-shot funds.

00:49:27 I think some of the specialist players

00:49:30 are coming out in the market.

00:49:32 I think that's some place which one could see.

00:49:34 So broadly, these are the few opportunities in debt.

00:49:38 Unfortunately, not too much in terms of yield,

00:49:41 but you know, when inflation is where it is,

00:49:44 I don't think you can expect

00:49:46 the nominal returns to be very high.

00:49:48 - Sure.

00:49:51 Anybody has a different view on debt in terms of,

00:49:57 is there more pain and where will interest rate-

00:50:00 - I have a view.

00:50:01 Okay, from Deutsche Bank's view, basically,

00:50:03 for us, clients are very conservative,

00:50:05 and a pool of clients that we have,

00:50:07 we've been very cautious on debt side.

00:50:09 We think the market still have

00:50:12 a lot of bleeding possibilities,

00:50:16 and therefore, you need to look for areas

00:50:18 which will swarm up a lot of credit risk.

00:50:23 You know, the kind of books and the banks

00:50:27 that are going on, we see it on the bank side also.

00:50:31 You see the kind of fiscal the government is extending,

00:50:33 the moratorium and the EDS,

00:50:35 and all that special credit schemes that have come in.

00:50:37 We think it's yet the NPAs are getting postponed,

00:50:40 and restructuring and all that will not be seen

00:50:42 in the real figures for some time.

00:50:45 And those figures, you'll only know the clear data

00:50:47 will come in maybe after a year or so,

00:50:49 maybe nine months to one year.

00:50:50 Having said that, we think therefore it will take time,

00:50:53 either within that time,

00:50:54 they'll be able to redo their banks,

00:50:56 and the demand picks up,

00:50:57 and therefore the companies or the individuals

00:51:00 are able to get their businesses back on trail.

00:51:02 So that one year could be used for that,

00:51:05 but if the risk is that the demand doesn't pick up,

00:51:08 and it's sluggish in this period,

00:51:10 then you might see more bleeding in that area.

00:51:12 Having said that, whether it will impact

00:51:15 the medium to large size companies or not,

00:51:17 yes, it will, that's what our reading is.

00:51:20 And therefore, you need to be very clear

00:51:22 where you're investing in the debt space.

00:51:23 So we are clearly positioned for AAA rated,

00:51:27 and that also where there's high level of cash,

00:51:30 and companies will be very cautious there.

00:51:33 And I think we need to the second answer,

00:51:35 so apart from AAA rated, long shot bond funds,

00:51:39 some of them have done really well,

00:51:41 and those need to be looked at.

00:51:42 I think there's no need to be adventurous

00:51:44 in this debt space,

00:51:45 because we think debt has to give you

00:51:47 a stable kind of a return,

00:51:49 and if you want to take a little bit of risk more,

00:51:52 you should go into equities,

00:51:53 and not take an equity risk in a debt portfolio.

00:51:56 So clearly, equities have its own place,

00:51:58 go by a structured allocation,

00:52:00 strategic asset allocation,

00:52:02 and just go by what you have been doing all through.

00:52:05 A little bit of changes can happen,

00:52:08 plus 5, 10% across asset classes,

00:52:10 but I think that's good enough.

00:52:12 And I think if generally there's a secular movement upward,

00:52:16 and there's a positive movement upward,

00:52:17 you would see first the equity markets rallying,

00:52:19 then you will see the real estate,

00:52:21 you'll see everything doing well,

00:52:23 and then you will see this,

00:52:24 you know, the interest rates spiking up

00:52:26 because of the inflation and other reasons,

00:52:28 and then you will start seeing

00:52:30 the debt returns really going up.

00:52:32 So I think we need to marry with a lower debt return,

00:52:36 which could be just 5% plus,

00:52:39 around that figure for the next few years,

00:52:42 maybe at least visibility is there for a year or two.

00:52:46 And that the client should be happy with,

00:52:49 because of its rates of return on deposits,

00:52:50 because the liquidity and all is very low.

00:52:52 As everyone said, it's clear,

00:52:54 the deposit rates are very low,

00:52:55 the interest rates and loans are very low,

00:52:57 and they're going to come down further,

00:52:59 because we think the inflation,

00:53:00 which is there on the reasons of foods, prices and all,

00:53:03 that's not going to sustain for too long.

00:53:05 We think the supply side constraints are there at the moment,

00:53:08 and therefore the rates are spiking.

00:53:11 But I think there's no way the governments can afford,

00:53:15 the monetary policy can afford actually,

00:53:17 to increase rates soon.

00:53:19 It may not go down the hill, like you said,

00:53:21 for too much now,

00:53:22 because it's come to some kind of a bottom figure,

00:53:25 but it may sustain itself for a little longer period,

00:53:27 an increased minimum.

00:53:28 - Sure.

00:53:32 Rajesh, would you think that is the worst is over

00:53:35 in terms of credit risk,

00:53:36 or is there possibility of earning higher yields

00:53:42 by slightly increasing your risk profile of your portfolio?

00:53:46 - So government borrowing pretty much has stayed

00:53:49 within limits,

00:53:50 and also RBI measures that they've taken

00:53:53 have eased the benchmark rates,

00:53:55 and have kept various spreads, range bond,

00:53:57 but we still find that there is some play in duration

00:54:02 for a three to five year tenor,

00:54:03 both in GSEC, AAA,

00:54:05 and a little bit even on the credit size in AA.

00:54:08 You're getting some really good businesses,

00:54:10 because we also monitor them on the equity side,

00:54:13 which are rated AA,

00:54:15 but, and the yields are very good there.

00:54:17 So there is a little bit of play on credit,

00:54:19 where we believe it'll come down over a period of time,

00:54:22 and midterm duration in both GSEC and AAA.

00:54:26 So, and good MLDs are also available,

00:54:29 MarketLink debentures today of some of these good quality

00:54:32 AA, AAA names,

00:54:34 which are more tax efficient,

00:54:36 and they are a good play on fixed income.

00:54:38 REITs continue to be a good play on fixed income.

00:54:41 So just keeping these three or four areas in mind,

00:54:44 and whatever risk has to be taken,

00:54:47 that goes into the equity side.

00:54:48 So not take too much of risks on fixed income,

00:54:52 but clearly a duration and credit play,

00:54:54 in the shorter, I would say midterm range,

00:54:57 three to five year,

00:54:58 there is a, there's good,

00:55:00 we believe that the pressure in second half

00:55:02 will ease further,

00:55:03 and there is a good play there.

00:55:06 - One last question to you Ashish,

00:55:09 since you mentioned value investing,

00:55:12 one real dichotomy that I've observed

00:55:15 in the value segment is,

00:55:19 the contrasting way in which the debt and equity of PSUs

00:55:24 have been priced.

00:55:26 So, I mean, the equity dividend yields are,

00:55:33 in many cases,

00:55:34 double or triple of the money at which

00:55:38 they are going for in the bond market.

00:55:40 So, is there a real reason or rationale

00:55:44 why you would justify this,

00:55:45 or is it something for the taking?

00:55:48 - So see, what was happening is the government

00:55:53 was continuing to supply equity by doing these ETFs.

00:55:55 So there was constant supply of equity from the PSU side.

00:55:59 So they've done three moves recently,

00:56:02 which I think are very positive.

00:56:03 Number one, they have,

00:56:05 I mean, I read this in the newspapers

00:56:07 and then Prashanth Jain also briefly mentioned this to me,

00:56:11 that he's also heard the same thing.

00:56:12 The government has said that they will no longer

00:56:15 be doing dilution through ETFs.

00:56:17 So there's no perennial supply.

00:56:19 Now, I haven't got this cleared.

00:56:21 Maybe you can check from your sources, Keshav,

00:56:23 if this is correct.

00:56:24 So I think first is the supplies.

00:56:26 See, why have some of these consumer stocks

00:56:28 and all run up?

00:56:29 Because there's so much demand

00:56:30 and there's not enough supply of these stocks.

00:56:32 So first is the supply side has been addressed out there.

00:56:36 The second part is I think if even one

00:56:38 or two genuine divestments happen.

00:56:40 So far we've had divestments,

00:56:41 but one PSU buying another PSU,

00:56:44 or those kinds of investments.

00:56:45 So if BPCL actually gets sold,

00:56:47 it will give a lot of comfort to the investors

00:56:50 that the government's intent is actually to get out

00:56:53 of the business of not being in all the businesses out there.

00:56:56 And third thing, like you said,

00:56:59 is that if the supply side constraint stops,

00:57:03 the government is really serious on divestment,

00:57:08 then I think it will start reflecting in the valuations.

00:57:10 And like you said that what is happening is today

00:57:13 an NDPC is able to borrow three year money

00:57:15 at 5% or whatever, out there.

00:57:18 I mean, now that will definitely have an impact

00:57:20 on their working.

00:57:21 But one of the challenges I have seen in value investing,

00:57:25 like I was just now on one of our global calls last week,

00:57:28 that this ESG as a theme has become very, very powerful

00:57:31 and we should not ignore it,

00:57:32 because Europe, I mean, most of the global investors

00:57:37 are now very serious about ESG.

00:57:39 Like when we were talking about valuations being,

00:57:42 there are large caps also.

00:57:43 I mean, this is not an equity recommendation,

00:57:45 but today ITC, please check the dividend yield,

00:57:47 which ITC has.

00:57:48 There was a lot of large caps also have a dividend yield.

00:57:51 So I think the ESG theme also is impacting

00:57:53 some of these PSU, Gitcold India, NDPC,

00:57:56 these kind of things.

00:57:57 - The power pack essentially.

00:57:59 - Sorry?

00:58:00 - The power pack essentially, the power.

00:58:02 - Yeah, yeah, yeah, exactly.

00:58:03 Now these are all cash generating businesses

00:58:05 doing very well, Power Grid, NDPC,

00:58:08 but because of the ESG theme,

00:58:09 a lot of big global players are not investing in it.

00:58:14 But my gut is that some of these businesses

00:58:16 should start doing well,

00:58:17 because the government has got good intents.

00:58:19 The moment it starts reflecting,

00:58:21 I think we should see those valuations improving slightly.

00:58:26 Is it a pure bull trade,

00:58:27 then you should get into it?

00:58:28 No, you have to be more diversified in it.

00:58:31 And when I said value investing,

00:58:32 I meant not necessarily just value.

00:58:35 Like there are businesses which continue to compound

00:58:40 at a decent rate,

00:58:41 which have been ignored by the market, like Power Grid.

00:58:44 Power Grid is a very stable return business.

00:58:48 So those are the areas,

00:58:49 some of the money may possibly move into.

00:58:52 - Sure, can you expand on those pockets of value

00:58:55 that you find?

00:58:57 - See, right now it's mainly in public sectors.

00:59:01 You see it's public sector enterprises

00:59:04 and maybe some of the stocks impacted by ESG.

00:59:06 Like for example, if you see ITC.

00:59:08 ITC is a huge consumer business.

00:59:11 It's a huge, I mean, if my personal gut is,

00:59:14 if ITC is the stock is split,

00:59:16 the consumer business may get a very high significant,

00:59:19 get a very, very significant valuation.

00:59:22 And similarly, banks.

00:59:23 You have banks at one time price to move.

00:59:25 I see a bank, I mean, Ashish is X.

00:59:27 I see a bank, 1.3 times price to move.

00:59:30 So I see a lot of value across sectors.

00:59:34 You know, a lot of mid-size banks

00:59:36 are trading at fairly decent valuations.

00:59:38 You have tech companies again in the mid-size,

00:59:40 which are, which are value.

00:59:41 You have auto, auto and serial businesses

00:59:43 which are at good valuation.

00:59:44 So it has to be a more broad-based value.

00:59:47 Like, you know, right now you had these seven, eight,

00:59:49 nine stocks which were going up.

00:59:50 I think if that becomes more broad-based,

00:59:53 then you should see some of these other sectors moving up.

00:59:56 In debt, my view is that for the segment

00:59:58 we are advising in, a lot of pain is out

01:00:00 because predominantly we work with mutual funds

01:00:03 and you know, the AAA corporates and all.

01:00:05 Most of the pain I feel is out in the segment

01:00:08 where we are working in, you know,

01:00:09 and we have started selectively recommending

01:00:12 some credit funds to our clients also.

01:00:14 The main problem in debt is that

01:00:16 that interest income is taxed at marginal rate.

01:00:18 So even if you're innovative,

01:00:20 if you're a ultra, if you're a high net worth,

01:00:22 you'll end up paying 43% tax, you know.

01:00:24 So you're a bit of innovation also.

01:00:26 Like if you do a lot long shot fund in debt,

01:00:28 you can face 43% tax.

01:00:30 So the main challenge is the tax rate, you know,

01:00:33 in fixed income.

01:00:34 So there's not much space to innovate.

01:00:36 Clients in India will have to get used to lower returns.

01:00:39 You know, in every meeting,

01:00:40 I try and explain that to them.

01:00:42 Look at, you know, today an investor in Europe,

01:00:44 actually in certain jurisdictions,

01:00:46 you know, Nestle bond trades are at a discount.

01:00:48 I mean, you have to pay money to buy

01:00:49 a 10 year Nestle bond, you know.

01:00:52 So we'll have to get used to lower returns.

01:00:54 That's what I think.

01:00:57 - That's all the questions for me.

01:00:59 Keshav, you have anything else to ask?

01:01:01 - Maybe we could just kind of, you know,

01:01:03 have an outlook question from all of you.

01:01:06 I mean, how do you see?

01:01:07 - What to expect in terms of returns over the next one year?

01:01:12 - 2021, yeah.

01:01:13 - Rajesh.

01:01:18 - So the risks.

01:01:19 - There is two things.

01:01:23 One is excess liquidity.

01:01:25 Second is lower returns on fixed income.

01:01:30 So you are going to see money coming into equities.

01:01:32 There's also optically market seeming high,

01:01:35 but there's huge value still available.

01:01:37 Financials, for example, maximum value available.

01:01:40 People are still concerned about NPAs and loans

01:01:44 and whether moratorium,

01:01:45 how much of it will be recoverable, et cetera.

01:01:47 But on a month on month basis, you're seeing improvement.

01:01:50 So financials, which includes insurance, AMC, NBFCs,

01:01:54 private banks, good value available.

01:01:56 Agri, agri-related businesses, good value, auto.

01:02:00 So there's a lot of value and hence equities in our opinion

01:02:03 will, while if you look at on a year on year basis

01:02:06 from last year, the index has hardly,

01:02:09 has probably moved or come back to pre-COVID levels,

01:02:12 but broad returns have hardly been 5% and 6% in equity

01:02:17 and not beyond that.

01:02:18 I think easily double digit returns in equities,

01:02:20 one can assume, not the index, I'm not going to index,

01:02:24 but in a well-managed portfolio,

01:02:27 your returns can be, you know, up double digit and above.

01:02:31 And if the government puts in place

01:02:34 or goes slightly more aggressive

01:02:36 in other major reforms, pending reforms,

01:02:39 this can even improve better.

01:02:41 I don't see, you know, COVID as a very big risk anymore.

01:02:46 I think it's being managed,

01:02:48 keeping aside the fact that there will be

01:02:49 short-term interruptions that may continue.

01:02:52 I think there's a clear realization

01:02:54 that you can't shut back the economy completely again.

01:02:58 So, you know, with vaccine, with everything else,

01:03:00 that also will be an improvement going forward

01:03:03 and it'll augur well for equity markets.

01:03:06 Fixed income, you're going to stick with your, you know,

01:03:09 4% to 7% kind of return without risk

01:03:12 and maybe some high yield that one can add.

01:03:15 We also believe that gold as an asset class

01:03:18 now is an important aspect.

01:03:21 We have been overweight on gold for the last one year,

01:03:23 but even on a long-term basis, four year, five year,

01:03:26 given that today your GDP, global GDP is $90 trillion

01:03:31 and you have debt of $270 trillion.

01:03:35 Last I told you that amount of money that's got printed,

01:03:38 you will have a situation where money will move

01:03:41 into hard asset classes, gold, distressed real estate,

01:03:44 equity, so gold also is an important part

01:03:48 of asset allocation and we believe that it'll give you

01:03:51 fixed income kind of returns.

01:03:53 Maybe if you're lucky slightly better

01:03:55 and it should be a key part of the portfolio.

01:03:58 - So, no, so Keshav, what I did is I thought

01:04:03 I'll hold Unmesh to this, you know, he's our product head.

01:04:06 So best he gives a prediction and then I can next year

01:04:10 look at his appraisal with this.

01:04:11 So basically he's saying well to 40% equity,

01:04:14 five to 7% debt, 30 to 15% alternatives,

01:04:18 you know, is what our product guys feel.

01:04:20 On gold, we have hourly tracking, you know,

01:04:23 because Julius where gold is like a big asset class.

01:04:26 I was just talking to one of my colleagues in Japan

01:04:29 and one of his, I just bought a hundred million worth

01:04:31 of gold and he custodized it with us, you know.

01:04:33 So basically our current goal is to buy gold on dips.

01:04:37 We think the meat of the rally is over

01:04:39 and we feel that gold is buy on dips right now.

01:04:43 We are, we feel that clients should continue

01:04:48 to diversify overseas and international portfolio

01:04:51 should be a significant part of your,

01:04:53 I mean, it should at least be 10 to 15%

01:04:56 of your asset allocation and US and China is what we like.

01:05:00 - Sorry, just to add that part I missed out.

01:05:05 International is also a key part of our allocation,

01:05:07 both US and China have a global fund for the last three years

01:05:12 and we are also bullish on China since the last one year.

01:05:15 And we believe 10% of our client portfolios,

01:05:17 we've been putting in international equities

01:05:19 and we'll continue to do that.

01:05:21 - So is that an issue in terms of valuation,

01:05:24 are you comfortable with where the global,

01:05:26 especially the US equities are in terms of valuations?

01:05:30 - Yeah, so, you know, we have a very strong

01:05:32 portfolio manager in the US and we run it like a PMS.

01:05:35 So there are 20 stocks and of course,

01:05:38 they have their own filters on earnings growth, cash flows.

01:05:41 So we are very, very comfortable despite the run up,

01:05:44 you know, it's not only a tech oriented fund,

01:05:47 it has a combination of some of the biggest brands,

01:05:51 be it an FMCG, be it in consulting, be it in IT

01:05:54 and pure play product tech companies

01:05:57 and very, very comfortable on a long-term basis.

01:06:00 See for us, you know, some of these aberrations

01:06:03 that happen in the short term because of COVID

01:06:05 or something else, we still believe

01:06:07 in the part of compounding.

01:06:08 Our philosophy is not to book short term profits

01:06:11 and get people in and out.

01:06:13 And even if you're in good businesses,

01:06:16 even if you get the timing wrong

01:06:17 and you have a long-term horizon,

01:06:19 the probability comes in your favor.

01:06:21 So it's all about how much time you spend

01:06:23 rather than trying to time it

01:06:25 because of election or something else.

01:06:27 So we continue to remain bullish on America and China

01:06:31 being the two largest consumers,

01:06:33 even in the next five, 10 years.

01:06:35 And your client portfolios can't not be exposed

01:06:38 to some of the best businesses that will benefit from it.

01:06:41 - Yeah, for us, it is as Ashish and Adi both have said,

01:06:46 I think the return that you can expect

01:06:47 from these asset classes on equity,

01:06:50 as you're saying around 12, 12 to 14,

01:06:52 fixed income can't really go beyond five to six or so.

01:06:56 Gold is one focus that our house view

01:06:59 is also very positive on.

01:07:01 It's been positive for the last one year

01:07:03 and till September,

01:07:05 the reading is it should cross 2,100 grams.

01:07:08 So that would be around 79% additional kind of a return there

01:07:13 and the alternatives should give you around 15 to 20.

01:07:16 Otherwise you don't need to get into alternative.

01:07:18 So our suggestion to the clients

01:07:20 would be stick to a strategic asset allocation.

01:07:23 If you're either a conservative balance

01:07:25 or a variation of it in and around that and aggressive

01:07:29 and be very clear with even the aggressive,

01:07:31 like you have an equity portfolio,

01:07:33 then be more of the large,

01:07:34 like we would say 35% on large

01:07:36 and then around 20% on mid cap,

01:07:38 you're out of the 55% that you have.

01:07:42 So even there we can make some classification on what,

01:07:45 but we are more large cap focused.

01:07:47 We feel the businesses which are run well in India,

01:07:50 which have strong management,

01:07:51 which have strong balance sheet,

01:07:53 they will continue to do well.

01:07:54 Even if their P/E levels are high,

01:07:56 you can still make money there.

01:07:57 So our NDBMS and DPM that we've launched recently,

01:08:00 they all are basking on mainly large cap

01:08:03 and less of mid cap.

01:08:04 And we still feel a lot of the mid cap stories

01:08:06 will ultimately turn to become large cap.

01:08:09 So you need to spot them well.

01:08:11 And those are the ones which we're looking for.

01:08:13 And if you have a proper stock selection this way,

01:08:16 in a long term basis, if you're looking long term,

01:08:18 you'll get your premium on equities

01:08:20 that you're looking out for.

01:08:22 And that's what you need to be focused on very long term

01:08:24 and not really doing trading on a short term basis

01:08:27 and expect returns to average out over a period of time.

01:08:30 So that's what we are saying.

01:08:32 And gold is globally,

01:08:35 we think uncertainties are going to remain

01:08:37 at least in the visible time period of three years or so.

01:08:40 And then gold as any other commodities

01:08:42 will still be an interesting asset class to invest in.

01:08:47 So that's broadly the picture.

01:08:48 I think clients should stick to discipline.

01:08:51 And our job is mainly to partner with them

01:08:54 to see that they don't really stray too much

01:08:58 on their strategic asset allocation.

01:09:00 - Deutsche Bank stock, what's your call, Athil?

01:09:03 Deutsche Bank stock, what's your, should we buy or not?

01:09:05 What's your suggestion?

01:09:06 European stock. - Deutsche Bank?

01:09:08 - Deutsche Bank stock, what's your view on Deutsche Bank?

01:09:10 - Deutsche Bank stock is also looking forward.

01:09:13 If you've seen the movie, the ratings have changed.

01:09:14 They've moved from negative to stable, just announced.

01:09:17 And the stock has also moved up.

01:09:19 So hopefully, they at least crossed

01:09:21 for the first time the European peers.

01:09:24 - Yeah, Ashish, you're.

01:09:26 - I'm saying I always find it difficult

01:09:28 to give a one year projected return,

01:09:31 especially on equities.

01:09:33 So debt, my view would be fairly consistent with most,

01:09:38 that if you stick to the quality end of the curve,

01:09:42 then it could be somewhere around four to 6%.

01:09:45 If you are able to do some bit of duration,

01:09:49 add some MLDs, a market link debentures,

01:09:52 and reads and invits,

01:09:54 then you can see a hundred basis points alpha over that.

01:09:57 Equity is very frankly, very difficult to say

01:10:02 what will be the one year projected return.

01:10:04 So what we typically tell clients

01:10:06 is continue to maintain your asset allocation.

01:10:08 And I think what Rajesh also pointed out

01:10:11 that it is actually time in the market.

01:10:13 Like you'll keep hearing stories

01:10:15 that if you miss the 10 best days,

01:10:18 70, 80% of the returns are gone.

01:10:20 Actually, what happens is that those 10 best days

01:10:23 actually come after the 10 worst days.

01:10:26 And people actually cash out after the 10 worst days.

01:10:30 So, and it's empirically proven.

01:10:32 I mean, this time I witnessed the correction so closely

01:10:36 that we did a bit of a study on tail risk and all this.

01:10:40 So we just want to maintain asset allocation.

01:10:43 When valuations will run up,

01:10:44 we'll moderate it or dial it slightly down,

01:10:47 but broadly stick to asset allocation.

01:10:49 Gold, we have started adding to the portfolios

01:10:52 about six, eight months back.

01:10:54 We should have started long back.

01:10:56 Our theory on gold is very simple

01:10:58 that there is a rupee depreciation meter,

01:11:01 which keeps running.

01:11:02 And give or take,

01:11:04 if the global interest rates are at zero

01:11:06 and we are at, let's say four, five, 6%,

01:11:10 give or take three, 4% of depreciation,

01:11:12 you're anyways going to see over a 10 year period.

01:11:15 And add to that,

01:11:16 whatever little appreciation you want on gold,

01:11:19 you will start beating debt

01:11:21 meaningfully over a 10 year period.

01:11:23 And despite the fact that,

01:11:25 gold has not performed from 13 to 15,

01:11:28 the only thing you have to be careful about

01:11:30 is that don't take a very, very short term view.

01:11:32 Either you're a trader on gold

01:11:33 and you're a professional investor,

01:11:35 it's a separate fact.

01:11:36 Go with a 10 year outlook,

01:11:37 your seven, 8% is because of the rupee depreciation

01:11:41 and movement in gold is booked back in.

01:11:43 International asset allocation,

01:11:46 I would again tend to agree US and China,

01:11:48 because these are the two markets

01:11:50 which are providing you not only with the consumers,

01:11:53 but also some of the finest companies in the world.

01:11:56 And unfortunately, there is no other way

01:11:57 to get access to those companies.

01:12:00 Alternatives, I'm not so bullish.

01:12:03 I mean, the lowest I heard was,

01:12:05 12, 14 to 18%.

01:12:07 I don't think alternatives

01:12:10 are giving these kinds of returns these days.

01:12:11 Post tax, post expenses,

01:12:14 10, 11% is what ultimately the clients end up getting.

01:12:17 But if you look at fixed income at 4%,

01:12:20 that's still a 700 basis points gap.

01:12:23 But one needs to be careful.

01:12:25 It cannot be, you know,

01:12:27 debt real estate funds

01:12:29 where the builders are caught up and all that stuff.

01:12:31 So if you're in private equity or some specialized space,

01:12:34 it'll give you reasonable amount of return.

01:12:36 But overall, what we want to do

01:12:38 is maintain the strategic asset allocation of the clients

01:12:41 with tactical bends

01:12:43 as and when market gives you those opportunities.

01:12:46 - Okay guys, thank you.

01:12:48 Thank you for taking time out

01:12:49 and wish you all happy Diwali

01:12:53 and hope to meet in person the next year.

01:12:57 Thank you.

01:12:57 - Thank you.

01:12:58 - Thank you all.

01:12:59 - See you guys.

01:13:00 - Happy Diwali.

01:13:01 - See you guys.

01:13:02 Happy Diwali to all of you.

01:13:03 - Bye.

01:13:04 - Take care.

01:13:04 (upbeat music)

01:13:07 (whooshing)

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