Mr. Janakiraman Rengaraju

Chief Investment Officer - Equity

Franklin Templeton Asset Management (India) Pvt. Ltd.

Mr. Janakiraman Rengaraju is Chief Investment Officer - Equity for Franklin Templeton Asset Management (India) Pvt Ltd. Mr. Rengaraju is responsible for overseeing all the local equity funds. His responsibility includes mentoring all the portfolio managers apart from continuing to be the Portfolio Manager for some of the key products. Mr. Rengaraju manages Franklin India Flexi Cap Fund, Franklin India Prima Fund, Franklin India Taxshield and Franklin India Smaller Companies Fund.

Mr. Rengaraju has been in the investment management Industry since 1997. He started his career with FT in 2007. Prior to joining Franklin Templeton, he was managing the investment corpus of Indian Syntans Group, a Chennai based privately held group of companies. Before this, he worked for UTI Securities, Mumbai. He is a CFA charter holder.

Q1. November has been a volatile month, with markets fluctuating between bullish and bearish trends. What is your outlook on the markets? Are there any chances of a Santa rally this time?

The domestic markets have remained volatile for the second consecutive month. Investor sentiment has been dampened by subdued corporate earnings for Q2FY25, concerns over potential U.S. tariffs, continued foreign fund outflows, and rising inflation. However, favorable state election results and easing geopolitical uncertainties have provided some support to the market.

Geopolitical uncertainty continues, and the change in the US government indicates that the coming months might be particularly eventful. Market volatility is expected, but the recent correction has created some upside potential, even with the earnings cuts. However, a shift in the trend of earnings estimate cuts might support a sustained market uptrend.

Q2. Foreign Institutional Investors (FIIs) shifted from being net sellers to net buyers in the latter half of November 2024. Could this act as a significant catalyst for a potential market rally ahead?

Although predicting the extent or direction of Foreign Institutional Investor (FII) actions is challenging, the fundamental outlook for the Indian economy remains strong in the medium to long term. The recent correction has indeed opened up the possibility of some upside potential in the markets.

Q3. SEBI proposes to introduce a close auction session in equity markets. It aims to replace the current Volume Weighted Average Price (VWAP) mechanism for closing prices. What are your thoughts on how this change will play out?

SEBI's proposal to introduce a Close Auction Session (CAS) in equity markets aims to reduce volatility and improve the accuracy of closing prices, especially for stocks with derivatives trading. The potential impacts include.

1. Reduced volatility: CAS aims to minimize price swings during market close, particularly on days of index rebalancing or derivative expiries.

2. Improved execution: Large orders might see better execution at the closing price, crucial for passive funds tracking indices.

3. Alignment with global practices: Many international markets already use a closing auction mechanism, aligning Indian markets with global standards.

4. Phased implementation: SEBI plans to introduce this in phases, starting with stocks that have sufficient liquidity, ensuring a smoother transition

Q4. After the Q2 earnings, how have you adjusted your investment strategy? Which sectors do you believe offer remunerative risk-reward opportunities at present?

The Q2FY25 earnings season has been weak, with both revenue and earnings growth under pressure across various sectors. However, the recent price correction presents some upside potential in the markets. Our investment approach is to capitalize on such near-term weaknesses to build positions in high-quality companies that can compound their earnings over many years.

We find a broad range of opportunities across sectors such as financial services, consumer discretionary, healthcare, real estate, and digital services. Additionally, the infrastructure and manufacturing sectors are offering investment opportunities.

Q5. What are the key potential trigger points for the markets in 2025 that investors should keep an eye on?

For 2025, we might expect a more turbulent year, particularly in terms of geopolitics. In India, these changes are already evident. We began FY25 with earnings growth projections of around 15% (source: Bloomberg), but now it seems we might achieve only high single-digit earnings growth for the Nifty. Expectations include RBI rate cuts and cooling inflation. The economic slowdown is expected to be transient, with a recovery in government capex during the second half of the fiscal year benefiting companies and sectors linked to the capex theme, refocusing on the ongoing multiyear capex cycle in India.

Q6. 2024 has been a record year for fundraising through IPOs and QIPs. What factors have contributed to this trend?

In 2024, retail inflows into single stocks are nearing record highs, similar to 2021, with positive inflows for 9 out of 11 months. India now has over 100 million unique investor (Source: NSE) trading single stocks, up from 30 million in FY20, with 7% of adults investing in equities, indicating a shift in investing habits. While only 25% of 2024's fundraising has been through IPOs, the IPO pipeline is strengthening, and Indian market multiples alongside a large domestic demand pool for equity, are also attracting the listing of MNCs' India arms.

The supply of equity in the market is fairly balanced, with block exits (promoter exits at 27% and private equity exits at 21%) making up a significant portion, alongside IPOs (25%) and Qualified Institutional Placements (QIPs) / Follow-on Public Offers (FPOs) at 27%. However, the large equity supply could limit market returns in 2025, despite strong domestic demand.

Mr. Deepak Agrawal

Senior Executive Vice President, Fund Management Debt

Kotak Mahindra Asset Management Company Limited

Mr. Deepak Agrawal is a Post Graduate in Commerce from Mumbai University, a qualified chartered account and a company secretary. Also cleared AIMR CFA Level I. His career has started from Kotak AMC when he joined the organisation in December 2002, where he was initially in Research, Dealing and then moved into Fund Management from November 2006.

Q1. India's 10-year benchmark government bond yield logged its biggest jump in six months in October. What are the factors that you think are affecting these yields right now?

Ans: Rise in US yield was the major driver for rise in domestic bond yield apart from higher inflation for the month of September 2024. The US yield were higher by ~ 65-70 bps in the month of Oct 2024. This was driver partially by strong jobs data for the month of Sept 2024 and partially due to market discounting Trump Presidency and Grand Old Party (GOP) clean sweep.

Q2. October saw the inclusion of Indian government bonds in the FTSE Emerging Markets Government Bond Index. Will this attract substantial foreign investment, boosting demand for Indian bonds?

Ans: After inclusion in JP Morgan Index and Bloomberg Emerging Market Bond Index, inclusion in FTSE Emerging Bond Index is also a positive sign. It increases the probability of Indian Bonds getting included in Bloomberg Aggregate Bond Index over the course of next 2 year, which can draw in substantial flow in Indian Fixed Income Market. Inclusion in FTSE Emerging Market Bond index will draw 4 Billion $ flows in Indian Fixed Income Market starting Sept 2025. Even though the quantum is relatively smaller as comparison to JP Morgan Bond Index, nonetheless it’s a positive development for the Indian Fixed Income Market.

Q3. India's fiscal deficit for April-September stood at ₹4.75 trillion, 29.4% of the estimate for 2024-25. What could be the possible reasons?

Ans: The government's spending has been lower due to general elections conducted earlier this year. Total government expenditure during the period was 21.1 trillion rupees, or about 44% of the annual goal. For the first six months, the government's capital expenditure, or spending on building physical infrastructure, was 4.15 trillion rupees, or 37% of the annual target, as against 4.9 trillion rupees for the same period a year earlier. GOI is likely to miss the budgeted capital expenditure for FY 25 by ~ 1 lakh crs. Net tax receipts for the first six months of the current financial year were 12.65 trillion rupees, or 49% of the annual target, compared with 11.6 trillion rupees for the same period last year. GOI finances also got a boost from 2.11 lakh crs dividend from RBI. The fiscal deficit target for the full is likely to be lower than 4.9% budgeted, which is positive for fixed income market.

Q4. The annual inflation rate in India rose to 5.49% in September of 2024 from 3.65% in the previous month, well above market estimates of 5%. How do you anticipate this?

Ans: Inflation for the month of September rose above 5% and for the month of October it has come above 6%. However the core inflation has been in the band of 3.6-3.70%. Inflation for September and October is largely due to vegetable inflation (tomato) which has started to cool off in the month of Nov 2024. Inflation for Q3 FY 25 is likely to be above RBI forecast, however for Q4 FY 25 Inflation is likely to be in line with RBI forecast. Inflation in Q1 FY 26 is likely to be in the band of 4.25-4.5%.

Q5. With gold prices hitting record highs recently, should investors consider increasing their exposure to gold, or is it time to book profits?

Ans: We have been advising investors to have some allocation to gold based on the advice of their investment counsellor.
We continue to remain positive on gold, given that global central banks continue to buy gold (H1 CY 24, Central bank gold purchases is 5% higher than last year), Monetary easing by Fed and given the fiscal, tariff and immigration policies of the Trump Govt is likely to push inflation higher.

Q6. How can retail investors effectively incorporate bonds into their portfolios to ensure steady income and enhance diversification?

Ans: Investors should adhere to asset allocation based on the advice of their investment counsellor. Within the fixed income allocation, debt funds are likely to outperform other traditional fixed income options due to rate cuts expected over next 1 year. As an alternative to debt scheme, Investors can also consider our Kotak Income plus arbitrage fund of fund, which invest 40% of the assets in arbitrage scheme and 60% of its assets in debt scheme. This fund is tax efficient as compared to other debt scheme.

Mr. Harsha Upadhyaya

Chief Investment Officer - Equity

Kotak Mahindra Asset Management Company Limited

Harsha Upadhyaya heads the equity desk at KMAMC, and also directly manages funds such as Kotak Standard Multicap Fund, Kotak Equity Opportunities Fund and Kotak Tax Saver. Harsha has over two decades of experience spread across equity research and fund management. He has previously worked with DSP BlackRock, UTI Asset Management, Reliance Group and SG Asia Securities. Harsha completed his Bachelor of Engineering (Mechanical) from National Institute of Technology, Suratkal and holds a Post Graduate Diploma in Management (Finance) from Indian Institute of Management, Lucknow. He also holds Chartered Financial Analyst charter from the CFA Institute, US. Harsha follows various sports, and was a hockey player while at the university.

Q1. Trump won the US elections. How do you think it would impact the Indian markets? Which sectors in India could benefit out of this and which ones stand to lose the most because of this change in US president?

Ans: India has been cordial relations with both the parties in US, so our relationship with US doesn’t get impacted with Trump winning. Trump is pro business and wants spendings to move up by cutting taxes. This may lead to increased IT spendings by US corporates which is good for Indian IT. Their is also a possibility of dilution in BASEL III norms which may again spur growth spends and benefit Indian IT. Trump administration may take steps to end Russia- Ukraine war which may result in growth in the European region , which in turn is good for global markets.

Q2. Foreign investors pulled out a massive ₹94,000 crore from the Indian stock market in October, making it the worst-ever month in terms of outflows. What do you think would be the trigger for them to come back to India?

Ans: Foreign investors are pulling the money out from emerging markets to deploy in the US market. The hopes of tax rate cut to result in earnings upgrade is one big reason for this massive pullout from emerging market. Once the trade settles, investors shall realize the long term potential for Indian equity market and shall relook at their allocations again. The portfolio allocations at the start of the new year could be one such trigger point.

Q3. What is your outlook on Samvat 2081? Do you expect the Nifty to deliver double-digit returns in the upcoming year?

Ans: Samvat 2081 starts on the back of very strong returns in the market especially from COVID-19 lows. The earnings growth momentum for the next two years is still in double digits . So, it is not unreasonable to expect a similar returns from the market especially the large caps. Though, any cut in earnings for FY25/26 or a multiple derating can result in inferior returns . We are still hopeful of a low double digit return form the current levels post the recent correction in the market .

Q4. Major IT companies have reported their Q2 results, and the BSE IT index has risen over 20% in the past six months. Based on the management commentary, what trends or insights are you picking up regarding the sector's outlook?

Ans: IT companies have reported a decent pick up in deal flow especially in small and discretionary projects. Management is seeing a growth recovery in segments like BFSI, Hi-ech and retail. Companies are expecting the margins to stabilize and see an upward bias despite Q3 typically seeing high furloughs.

Q5. The festive season typically brings a surge in consumer spending. Have you observed any significant changes in consumer-driven sectors this year? Are there any particular sectors within India that have performed better or worse than expected?

Ans: The festive season has gone well as per various channel checks. The commentary from various companies is coming positive especially for the rural part of the economy. The urban centric consumption has taken a slight back seat which many are saying that shall pick up as government spending picks up pace. The impending wedding season is also giving hopes for a buoyancy returning to the consumption segment in coming months.  We have seen a sharp pickup in the festive season in segments like passenger vehicles , two wheelers and durables. Alcohol companies have also reported brisk sale . Apparel and jewelry companies also reported good sales growth.

Q6. Every bull market comes with its share of corrections, testing investors' patience along the way. What advice would you give to investors who are holding off on buying, despite having a shopping list ready? They were waiting for a dip, but now seem hesitant to take the plunge.

Ans: Over the history of Indian equity market, market has corrected by ten percent or more from its peak in almost all the calendar years. So, correction is a part of the overall market movement. One shall not get scared from corrections but may use them as an opportunity to build up portfolios for long term. In our view, if you have a five year or more time horizon in equity market, the best time to invest the money is NOW.