Tech Fund Investments: What's In Store For IT Ahead Of US Elections? | The Mutual Fund Show
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00:00Hello and welcome to NDTV Profit.
00:09You're watching the Mutual Fund Show.
00:11I'm your host, Neeraj Shah.
00:12The topic that we've chosen today is tech.
00:15And there is a reason why we're talking about this today.
00:18And the reason is this, that for the longest time, at least the last four or five months,
00:24four or five months is a long time these days, we've heard people say that you should try
00:29and bet on tech stocks after the U.S. elections, uncertainty is out of the way.
00:36Now we are one month away from that.
00:39And markets don't give you returns after the event has happened and the news is discovered,
00:44or at least the returns are not outside.
00:46So the question that we are trying to address today is that is it a good time, therefore,
00:51to start an SIP or a lump sum or a tactical investment into some of the tech funds, considering
00:58that the U.S. elections will be over in a few months.
01:01There is also the ISG data which came out, which showed that there was some optimism,
01:07though ISG has maintained the guidance, but the Q2 deal flow or the Q3 deal flow, as the
01:12case may be, was very, very strong.
01:15And therefore, will Indian IT firms have the chance to actually deliver good returns in
01:20the next six to nine to 12 months?
01:25That's the question that we ask our experts today.
01:28Mohit Gang, co-founder and CEO of Moneyfront, and Vishal Dhawan, founder and CEO of Plan
01:33Ahead Wealth Advisors.
01:34Gentlemen, both of you, it's such a lovely thing to talk to you both of you today.
01:38It's been a while that we've spoken on the same show.
01:42So thanks for joining in today.
01:43Thanks for taking the time out.
01:45And great having you both.
01:46Vishal, I'll start with you on this one.
01:49What's your sense about making a tactical lump sum or an SIP for a short period kind
01:57of an investment into Indian tech companies or Indian tech funds currently?
02:03So I think a lot of this, you know, needs to come from where the macro environment is
02:08today.
02:09And what does the outlook look like?
02:11And you know, the ISG report that you referred to, also picks up certain threads around the
02:16macro environment and tries to build a case outside of US elections.
02:21Since you spoke about US elections, it's very interesting that, you know, when you look
02:24at long term data, most times the outcome 12 months after the event has been largely
02:34positive.
02:35If you go back to the last eight elections in the US, and you look at data on the S&P
02:40500, for example, one year after that, you'll see that virtually always the S&P 500 has
02:45done well.
02:46Of course, you know, no one knows the future, but that's what the past data shows.
02:51Having spoken about the elections, it's important to go back to, you know, what was holding
02:55back IT businesses, essentially one was high interest rates.
03:01So we've seen the first signs of rate cuts starting to emerge.
03:05You know, the US has cut rates, the US Fed governor has said that, you know, he's happy
03:10to...
03:11The Fed chair has said that he's happy to sort of continue this journey, especially
03:15this weakness in the US economy, the ECB has been cutting rates.
03:20You are seeing, you know, financial services make up roughly about 25% of all, you know,
03:27contracts in IT.
03:28I think to, you know, show some benefits, which typically come through from falling
03:34interest rates.
03:35So there is an environment in general, which is more positive for IT companies.
03:40On top of that, for Indian IT firms, you also have the rupee depreciation, potentially adding
03:45another 0.2% to 0.5% on margins, because the rupee has been depreciating.
03:51Now the important element here is how much of this is already priced in.
03:54Because obviously, if you want to go ahead and buy a business, which is in IT services,
04:06you need to be aware about valuation.
04:08So valuations for IT firms in India are roughly at about, you know, close to a 30 to 35% premium
04:16to long term averages.
04:17And therefore, it's not necessarily a cheap market that you want to buy into.
04:21And therefore, we would suggest that investors need to be very mindful of that, that maybe
04:26some of this is already priced in.
04:27And therefore, if they're looking to invest, they'd much rather go into more gradual investing
04:33rather than lump sums, and go in with a longer term investment horizon.
04:38And obviously, not all investors can go in, it's probably aggressive investors who can go there.
04:48I have a follow up here.
04:49But first, let me get in the opening thoughts from Mohit on this one.
04:52Mohit, like I said, great having you on the show.
04:55What is your thought here, Mohit?
04:57The bear could argue that the commentary from the IT firms isn't quite looking that great.
05:03The bull could argue that we are waiting for that one major event to be out of the way.
05:08And some of the commentary, the ISG data, etc., that has come out, has mixed, let's say,
05:16mixed outcomes, if you will, or mixed cues, but still has some optimism too.
05:22Would you or would you not recommend tactically allocating into IT firms, IT funds?
05:33Mohit, can you hear me?
05:34Sorry.
05:35Yeah.
05:36I was on mute.
05:37Sorry.
05:38Thank you so much, Neeraj.
05:39Always a pleasure speaking with you.
05:40Look, honestly, I think the time to enter the IT space was, perhaps the right time to
05:48enter the space was about six months back.
05:50I would not say that you are quite late in the rally right now or quite late in the business
05:57right now.
05:58If someone is of the aggressive mind bend and looking at the way we are poised for the
06:03rate cycle reversal by Fed and also by the Central Bank in India, I think both auger
06:09extremely well for the IT sector.
06:11IT somehow has been a sector which is extremely rate sensitive.
06:15And typically, whenever the rate cycle reversal happens, IT has seen multi-year growth from
06:22that time onwards.
06:23Honestly, if you see last calendar year, there were fantastic returns from IT.
06:29If you see the IT index today, last one year return has been almost 34 odd percent, right?
06:34So, a good chunk of the rally is already in.
06:37But again, as I said, I think the rate cycle has just about started, right?
06:41So, US has just gone with the 50 bps rate cut.
06:44And perhaps in November, we might just see a 25 to 50 bps further rate cut happening.
06:48And RBI might follow suit in the next policy meet.
06:51And from there on, you might just see a cycle of reversal happening for a year at least,
06:56if not more.
06:57So, with that in perspective, which is a larger perspective, I would say A, it's a good time.
07:02B, I think obviously US elections, which is one big roadblock, I think mentally is almost
07:08we are about to get over.
07:10And as you rightly mentioned in your opening comments, there is no point getting into a
07:14thing after the news flow is out, right?
07:17So, you have to make sure that you are in the play right now.
07:21So, if someone really wants to take this as a tactical call, and obviously aggressive
07:25profile, as Vishal rightly mentioned, then I think perhaps the right time is to enter
07:29right now and not delay it any further, not even postpone it by a quarter or so.
07:34Because I think by then, maybe you will have one more rate cut by a Fed, you will have
07:38some concrete indication by RBI on rate cut, and you will have the US elections also.
07:42So, almost every positive news flow will be out by then.
07:46So, if someone has to enter it, the time is now.
07:49Time is now.
07:50Okay.
07:51So, Mohit, would you wait for an event or earnings upgrade or clarity or what is it
07:57that would you wait for before you take a more constructive call on thematic funds,
08:02particularly from the tech space?
08:05Look, honestly, I think the earnings season is on right now, right?
08:09And you've not had a great beat from TCS, but you've had a reasonable number set from HCL.
08:15So, my sense is there are two ways to look at this, Neeraj.
08:18Either you look at the IT index per se, you have 10 heavyweights out there.
08:22They are reasonably priced right now.
08:24And I honestly don't see a huge upside.
08:26But then you have a other way of playing the IT space as per se is to go into digital
08:32funds or technology funds which are more open-ended in nature and where you will have
08:36a certain amount of mid-cap IT also in the play.
08:40My sense is those are better plays where you have slightly more smaller names and perhaps
08:46the growth stories out there are quite reasonable.
08:50Though on the valuation front, again, they're not very cheap.
08:53They are quoting at a 10-year average band or maybe a little higher than the 10-year
08:56average band, in fact.
08:58But nothing good in India is coming cheap right now, right?
09:01So, having said that, my sense is if someone has to really enter the space right now, they
09:06have to perhaps look a notch below the IT index, try and capture a digital fund or an
09:11IT fund which has some bit of mid-cap IT also in it.
09:15And yes, I think the right time is right now, as I said.
09:19Okay, fine.
09:22Sorry, I misunderstood, Mohit.
09:24Excuse me for that.
09:25I thought you were saying that you want to wait for a bit and not currently.
09:29I'm guessing that is not exactly what you said, right?
09:31No, no, no.
09:32I think my call was that someone should have entered six months back.
09:35But even today, I think it's a reasonable time to enter in but not delay it further
09:39beyond a quarter or so.
09:41I think then bulk of the thing would be out of the game.
09:44Okay.
09:45Vishal, just wondering, do you think that the US election outcome getting over could
09:54itself be a sentimental trigger of sorts?
09:59Because everybody was saying that all US firms will make their decisions after the election
10:04verdict is out of the way.
10:06We heard some companies in private conversations talk about that.
10:10And frankly, I mean, the other underlying factor is that their main clients, which is
10:16the banking companies in the US, have delivered decent numbers and the guidance, right, from
10:21a Citi to Goldman to whatever.
10:23So can the US elections be a big trigger or not really?
10:27So we don't think so.
10:29Because again, if you go back to historical data, it's hardly mattered who has won the
10:34election.
10:35It's not even mattered if the person who came in was not the person who the markets expected
10:42to come in.
10:43So if you go back to history and look at the last eight elections, except for 2000, when
10:49there was this big tech crash that took place, which everyone knows about.
10:53And you looked one year later and you were on the back of the 9-11 crisis that happened
11:00as well.
11:01In all other periods within a year, markets typically did well from a US perspective.
11:08So I think our sense is that what you want to watch more carefully is how interest rates
11:14move and what follows the interest rate cycle.
11:17So I think a lot of the expectation is getting built in around lower interest rates in the
11:24US.
11:25And I think it's very interesting to look at the data very carefully about how interest
11:30rate cycles work.
11:31So on an average, lower interest rates obviously are good for equities.
11:36And tech is a part of that entire piece.
11:40But if you break it up into looking at it, if the interest rate cut was accompanying
11:47an economic expansion or a recession, you see a very different picture.
11:51So all the good stuff around interest rates happens when there's an economic expansion
11:56accompanying the interest rate cut.
11:59If there's actually a recession that happens and the interest rate cuts are primarily driven
12:06from there and continue to be sharper because the economy is not doing well, then you would
12:11imagine that that's not a good time for IT because a lot of businesses are then going
12:15to look at how do they cut costs.
12:18Some of it, of course, will be offshoring or moving some of their processes out.
12:24But that's when I think there is a tendency to find that the impact of interest rates
12:31going down is lost on IT businesses because they just don't get the orders that they were
12:36hoping to be able to get access to.
12:39Well, viewers, we have in some sense a bit of a contrast in views and which is always
12:45good to have because you should hear both sides of the call.
12:48There is no right or wrong answer for every stock that is sold.
12:51Somebody else is buying that stock as well.
12:53It's always a hypothesis.
12:54So whichever view you subscribe to, you can figure it out.
12:57Now, let me just try and nail it down before I get queries.
13:00Mohit, if you are at a liberty to, if you can tell us which funds, it need not be an
13:08exhaustive list or the only list, but examples of one or two funds, then people can consider
13:13if they do want to not delay the decision for less than a quarter, for more than a quarter.
13:19Sorry.
13:21So, look, I think Proo ICICI Technology Fund, Tata Digital Fund, these are a couple of names.
13:28And obviously, as I said, IT index per se also can be looked at, though I am a little more keen
13:34or more tilted towards the mid-cap IT space, a combination of mid and large cap.
13:39So I would rather go to an open-ended technology fund out there.
13:43So, yeah, those are a couple of my choices.
13:46And Vishal, just a contra question.
13:48So while you may not be completely in favor of a tech fund, but there are a couple of,
13:53I believe there are some funds which do not have an IT services presence,
13:58but a lot of other tech company presence as well.
14:01Could those be looked at or is the overarching weighted still in favor of IT services
14:07and therefore you would rather avoid?
14:10So I think the way to think about this is an SIP.
14:13Assuming that you are really thinking longer term, you do believe that the whole, you know,
14:19trend towards digitization is not going to get reversed.
14:22You are seeing even in the ISC report, you know, how AI, for example,
14:27makes up such small components today of the entire revenue stream of IT companies.
14:34And, you know, it's still anywhere between 5% to 15% only.
14:37So there is potentially a shift that is also taking place there.
14:41So we think that if investors are thinking about this,
14:44then they may look at two funds in the space through an SIP,
14:49either the Billion Digital India Fund or the Tata Digital India Fund.
14:54So both of them are options, but clearly for aggressive investors going through an SIP
14:59and having a long investment horizon to not worry that, you know,
15:04is some of what is happening excessive right now?
15:07And therefore they're going to look back and say that, oh, you know,
15:10I exited too early because I came in,
15:12but then I lost patience and then I left.
15:15Okay. Okay. Gentlemen, thank you so much for this.
15:20It deserved attention simply because so much of chatter around this election
15:26and what do IT services funds do. So good to get that view.
15:29Now I have a few queries from our viewers,
15:32and I would love for you guys to try and help our viewers as to what they should do.
15:36Standard disclaimer, of course, viewers, when you're hearing from them,
15:39please do your own due diligence as well.
15:41And if you're not completely sure, please keep the services of a financial advisor.
15:45It truly helps. But nevertheless, you can come to shows like ours
15:49and try and understand from experts that we call.
15:51The first query is from Sundar. Sundar is aged 61 years. Sundar is a first time.
15:56Sundar says, I'm a first time investor who's looking to invest up to 50 lakh rupees
16:00in lump sum with a seven to 10 year horizon.
16:03Can some names be suggested? It's a lump sum that Sundar wants to do.
16:08Mohit, let me start with you on this. Is a lump sum a good idea?
16:13And even if it's not a good idea, if Sundar wants to know about a lump sum strategy,
16:18do advise him.
16:21Meeraj, honestly, I think at his age, he's starting at age 61.
16:27And honestly, at that age, I'm not pretty sure of his overall financial this thing,
16:32but I'm assuming out there if he's going ahead with a 50 lakh kind of a sum,
16:36which is a larger sum and is keen on lump sum, then he is properly planned
16:41and properly allocated on fixed income and his other retirement corpuses
16:45and other things are well taken care of.
16:47Look, I would still not suggest a lump sum investment at the current market levels.
16:51I would request him to stagger it out from a three to six month kind of an STP bucket.
16:56If I were at this junction, start a fresh portfolio.
17:00I would go with a Nifty 50 index fund, approve ICICI Nifty 50 index fund,
17:04a UTI Nifty Next 50 index fund.
17:07These will be the two choices on the large cap side.
17:11I would go with a FlexiCap fund, which could be a Franklin FlexiCap or a Bandhan FlexiCap
17:18and a quality MidCap fund, which would be a DSP MidCap 150 quality 50 index fund.
17:25I would still avoid any aggressive equity, a sectoral thematic or a small cap equity
17:32for his profile because A, he's a first-time investor and then maybe a hybrid
17:37or a balanced advantage fund just to give a slightly more conservative tilt to the portfolio.
17:41Perhaps approve ICICI balanced advantage fund to just add to the entire mix.
17:47Vishal, your answer differs?
17:53I think for a first-time investor, assuming everything else, cash flows are taken care of, etc.
17:59If you're trying to do a lump sum right now, to us, it seems like only a balanced advantage fund
18:05or a set of balanced advantage funds and maybe an equity savings fund is the right choice.
18:12I think we are in market valuations, Vishal, and what you want to do is,
18:17even though you have a 7-10 year investment horizon, you don't want to panic along the way.
18:22I think if you look at risk-adjusted returns in this environment, a good equity savings fund
18:28and maybe a good balanced advantage fund combined together could probably be a good starting point for Mr. Simran.
18:35Fair call. Vishal, the next questions I'm starting with you are Ravi Chandran, age 65.
18:40We're getting a lot of senior investors today.
18:43Mr. Ravi Chandran invested Rs. 10 lakhs in Quant FlexiCap fund in June,
18:47but the fund has performed poorly compared to peers, he says.
18:53Therefore, he's asking whether he should continue with this fund or switch to a Motilal Oswal Multicap fund.
18:58I'm adding a bit of a layer or some other fund.
19:01The goal of Mr. Ravi Chandran is long-term wealth creation.
19:11I think it's interesting that we're talking about the underperformance over a 3-4 month period
19:18and decisions being made on that basis, which we think is probably very suboptimal for any investor.
19:24It's not a reflection on Quant FlexiCap, but it's a reflection on the fact that
19:29I think trying to find performance data over 3-4-5 months and then making decisions to enter or exit
19:38is probably an inappropriate strategy, especially for investors whose goals are long-term wealth creation.
19:45My starting point would be that you need to start thinking much longer term.
19:49If you're thinking about underperformance, look at the fund carefully, but don't act on it
19:55at least for a couple of years before you start actually fiddling around with the portfolio.
20:00I think if I reflect back and think back saying that if I was Mr. Ravi Chandran in June
20:09and I was trying to make this decision and I'm 65 and I do want to create long-term wealth,
20:14would another FlexiCap fund, for example, have been a superior choice?
20:22And we think that if one is trying to look at only one fund to pick in that market,
20:28we think the Parag Parik FlexiCap fund actually fits the boxes very well for three reasons.
20:35One is it gives you access to largely Indian equity.
20:40Second is it gives you access to some portion of the portfolio in international equity,
20:45roughly about 10-12% now.
20:48And the third is that the manager does end up using cash if he does end up believing
20:54that market valuations are not supportive.
20:57And while that can lead to underperformance in shorter periods of time,
21:00I think for investors who are sort of depending on funds to make some of their decisions
21:07on their behalf, I think it suits the investor quite well.
21:10And obviously, they have a great long-term track record,
21:13though their recent performance may be slightly suboptimal.
21:18Okay. And frankly, Mr. Ravi Chandran, you could have picked up any fund
21:24and that fund may have underperformed over the last six months.
21:27And it is very likely, by the way, that you may swap and then the fund that you are invested in
21:31may start performing well as well.
21:33I think that point is that shorter term may not really work.
21:36Maybe, Mohit, you can give a quick shot to this one because I have one more query waiting,
21:41but a slightly quicker answer from you if you can to this query.
21:44Look, honestly, we've been tracking this fund for a fairly long while.
21:48On a one-year, three-year, five-year scale, the fund has beaten the benchmarks extremely handsomely.
21:53And my sense is if I'm not wrong, Neeraj, the performance for last one year for the fund
21:58would have been over 50-odd percent returns, right?
22:01So I don't call it underperformance by any stretch of imagination.
22:04It is very well possible that he is comparing in a very short tenor
22:08and perhaps looking at other categories or looking at some other funds in his portfolio
22:12and taking that conclusion out.
22:14I think it's a great fund. He needs to hold on for a fairly long time.
22:17Okay. Well, again, Mr. Ravi Chandran, you've got kind of a complete round view.
22:24If you are bent upon changing, Vishal has given you some options,
22:27but the common answer seems to be that don't look at it from such a short perspective.
22:32Okay. We have a few minutes left. We need to put in one more query from Arbain.
22:37Arbain Kazmi. Arbain Kazmi is aged 57 years.
22:41Arbain says, I have saved up to 2 lakhs over the last couple of years
22:47and would like to invest the amount in mutual funds.
22:51Sadly, I do not have both. I don't have the targets or the risk appetite or the time duration.
22:59But with an assumption that it's moderate risk appetite and let's say for 10 years
23:05because I don't have any other responses here,
23:08but let's help Arbain figure out which funds should the allocations happen in.
23:14Mohit, can you help please?
23:18It looks likely from the nature of the query and at age 57,
23:23if someone has saved 2 lakh rupees over the last couple of years,
23:27that means an extremely hard-earned money and it needs to be preserved pretty well.
23:31I would go extremely safe with this allocation, Neeraj.
23:34Out here, I would perhaps advise a balanced advantage fund,
23:38which could be a true ICICI balanced advantage fund
23:40and maybe a conservative hybrid fund or a multi-asset fund to top it up.
23:47But otherwise, I think the investor here needs to be extremely careful about this part of money
23:52and only go with balanced choices or conservative hybrid choices.
23:57Vishal, any different thoughts here?
24:02No, I completely second Mohit's thoughts on this fund.
24:05I think with the data available, it's probably a good idea to tilt towards being more conservative
24:11rather than trying to cash the trend that we are in.
24:15Do we have time for one more query? Maybe we do.
24:18Very quickly here, Vishal, Rabindranath, age 35, says,
24:24I want to take advantage of the global semicon theme.
24:27Any funds can be suggested? Any thoughts, Vishal?
24:31I think India does really give you a lot of access to thematic opportunities,
24:39in my view, specifically around semiconductors.
24:43So you are going to be dependent on either going to a flexi-cap or a multi-cap fund
24:49where the manager picks some of this,
24:51or you might have to pick a thematic technology fund,
24:56either in India or overseas, to take advantage of this.
24:59But if you do want to consider many allocations,
25:03then you might want to think about using the LRS limit available to you.
25:09Of course, it comes with reporting implications, taxes, etc., which are different.
25:14But think about buying into a global semiconductor ETF,
25:18which could give you access to this theme in a much more structured and defined manner.
25:23Okay. Afraid we are out of time completely. I would have loved to take more queries,
25:27but I think we have addressed four today, which is more than what we usually do.
25:31So, gentlemen, both of you, thank you so much for coming in for something
25:35which was probably very basic on the query side
25:38and fairly esoteric on the thematic fund side.
25:41So, really appreciate you traversing both ends of the barbell.
25:45And to you and yours, if we don't meet before Diwali on air,
25:49happy Diwali and a prosperous new year.
25:51Thank you. And Vishal, thank you so much. Thank you for being here.
25:54Thank you so much. And viewers, that's all that we have the time for.
25:57Thanks for tuning in to The Mutual Fund Show.
26:05www.mutualfund.com