History suggests that markets tend to become volatile before general election outcomes. In fact, during the previous three general elections, the volatility index (VIX) experienced sharp spikes leading up to the elections. 

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“However, we believe that uncertainty does not end with general election outcome; it begins there. As the market processes the general election results, uncertainty around budget will emerge. Following this, the build-up to the US presidential election is expected toincrease volatility in global equities.  Amidst all of this, the US interest rate cycle and global geopolitical challenges will also contribute to a fair amount of volatility in equities in the near term,” says Sorbh Gupta, Senior Fund Manager – Equities, Bajaj Finserv AMC, in an exclusive e-mail interview with Zee Business' Roshni Agarwal.

Sorbh Gupta is a Senior Fund Manager managing the equity portfolio. He has around 17 years of experience in the Indian Equity Markets across Fund Management, Equity Research & Asset Allocation. He has successfully managed the only India-dedicated equity mandates for some of the world’s largest institutions as well as the retail equity schemes of domestic mutual fund. Prior to joining Bajaj Finserv Asset Management, Sorbh was associated with Quantum Asset Management. He is a qualified Chartered Accountant & also a charter holder of the CFA Institute, USA.

Edited excerpts:

 Q1. How is your Multi Asset allocation fund offering the dividend yield benefit different from other funds in the category? Will the fund pay-out dividend on a regular basis, if not, how is it lucrative when compared to similar funds?

Our investment strategy involves an equity allocation of 65-70%. The equity investments will focus on companies with high dividend yields and visible cash flow growth, as we believe dividend yield as a category is under appreciated. In fact, the Nifty dividend yield 50 TRI has outperformed Nifty 50 TRI over the long term(Source: Ellara Securities, MFIE Explorer and Internal Data Sources as on 31st March 2024). Additionally, this strategy offers significant tax efficiency. While individual equity investors face maximum marginal tax rates on dividends, mutual funds are not taxed on the dividends received from their investee companies. Instead, taxation for mutual fund investors occurs upon the redemption of units, treated as capital gains. This approach emphasizes the benefits of a higher equity allocation, investing in high dividend yield companies, and leveraging the tax efficiencies provided by mutual funds.

Q2 According to you, who should opt for multi asset allocation funds and why?

Investors seeking a balanced investment approach with lower volatility compared to pure equity funds, along with the resilience to perform across various market conditions, may find multi-asset allocation funds to be ansuitable option. These funds offer the benefits of professional asset allocation, where experienced fund managers actively adjust the portfolio's mix of assets based on market dynamics and investment objectives. By diversifying across multiple asset classes, including equities, bonds, and sometimes alternative assets, multi-asset funds aim to mitigate risk while seeking reasonable returns over the long term. This approach provides investors with a level of stability and consistency, as well as the potential for growth, making it suitable for those who prioritize both capital preservation and growth potential in their investment strategy.

Q3. As we are through the Phase 4 of Lok Sabha elections 2024 and there is a lot of nervousness amid low voter turnout, how do you sense the markets to perform in the near term and post-election outcome due on June 4?

History suggests that markets tend to become volatile before general elections outcomes. In fact,during the previous three general elections, the volatility index (VIX) experienced sharp spikes leading up to the elections. However, we believe that uncertainty does not end with general election outcome; it begins there. As the market processes the general election results, uncertainty around budget will emerge. Following this, the build-up to the US presidential election is expected toincrease volatility in global equities.  Amidst all of this, the US interest rate cycle and global geopolitical challenges will also contribute to a fair amount of volatility in equities in the near term.

Q4. Sectorally, there has been a sharp run-up across sectors, including energy, realty and PSU among others. Going ahead, which sector/s are you upbeat on and on what premise? Likewise, which sector/s do you see underperforming over the course of time?
 
PSUs have played out well over the last 12-18 months, with some businesses poised to benefit from the government’s focus on ‘Make in India’ and the push for capital expenditure. While the order books are swelling, investors need to be cautious about a few factors.  These are government-owned, and their primary customer is also the government. Often these businesses face extended working capital cycles or sudden changes in profitability depending on the government’s financial situation.  Some of these companies are in the frothy zone and ignoring the risks. Investors should choose these stocks carefully, specially at these levels.
 
We believe energy & realty sector will continue to see earnings upgrades and remain positive on these sectors.

Instead of focusing on sectors, we believe a long-term equity investor’s portfoli include constituents that benefit from the ‘megatrends’ ocurring around us. These megatrends encompass changes in Technology, Regulatory, Economic, Nature, Demography and Social. Each of these trends has the potential to transform the business environment and the world around us.  Endeavour of the investors should be to bet on businesses that benefit from these megatrends. Instead of looking for sectoral funds,investors would be better off considering diversified equity funds that are betting on multiple megatrends.

Q5 Has the froth in terms of valuation in the broader markets settled and to what extent retail investors need to be cautious even now?

Corporate India is amidst a strong earnings upgrade cycle driven by public and private capex, a strong corporate balance sheet, a well-capitalised banking system and an upcycle in residential real estate. This is further supported by a positive global macro set up. We think this positivity will continue, however, volatility too will increase for the reasons mentioned in the previous responses.

Retail investors entering the equity markets should have a long-term orientation which is a prerequisite.  Investors focusing on short-term gains should be more cautious in this environment. If an investor is worried about the binary outcome of general election, a three-month STP is  also a good option. More risk-averse investors can start their investment journey by investing in a well-managed multi-asset strategy.