ETMarkets Smart Talk: By investing just Rs 1,000 in SIP, investors can make over Rs 8 lakh in 20 years: Anil Rego

“A monthly SIP of Rs 1,000 for 20 years assuming annual compounding at 11% will result in a portfolio of Rs 8.6 lakh against an investment of Rs 2.4 Lakh,” says Anil Rego, Founder and fund manager, Right Horizons PMS.

In an interview with ETMarkets, Rego said: “Investors can also utilize the intermediate correction to increase SIP or do a top up, so as to enhance the overall portfolio corpus” Edited excerpts:

After 3 consecutive months of losses do you think we could see some green in July as some of the headwinds seems to be slowing down? What is your view on markets for the short to medium term?
We refrain from taking short-term views on the market and look at the corrections as an opportunity to invest more in quality businesses that are available at bargain prices.

Market valuations are also attractive at this point. As a fund house, we are buying on every large dip in the market and are of the view that the market is pricing the extremes and thus could provide good upside over next 2-3 years.

Rupee seems to have taken the centerstage as it inches closer to 80 levels. What is leading to weakness in the currency and where is it headed?
The Russia-Ukraine war instigated fears around the globe leading investors to turn towards safe haven investments and fuelling it further was the rate hike by US Fed. India’s coffers had accumulated to record-level forex reserves.

The Reserve Bank of India (RBI) has been using these reserves in the last few months to intervene in the forex market to slow the rate of depreciation.

RBI has recently rolled out new mechanisms to settle global trade in Rupee, this is expected to relieve some of the pressure on forex reserves, however as we near to the inflation peak, the dollar index is also expected to peak out and this may stabilize the currency in due course.

Sectors that are likely to benefit or be impacted the most from rupee depreciation and why?
During intervals of depreciating rupee sectors that are driven by exports tend to benefit like pharma, textile, engineering, sugar, chemicals, and software services.

Import-dependent sectors like refineries, steel and industrial gases, airlines, jewellery, cement, and fertilizers are impacted since these companies are exposed to rising input costs that will add pressure to their margins.

Weaker currency boosts the top-line for exporters and increases the raw material costs for importers.

Merchandise export crossed record targets of $421 billion and services exports touched peaks of $254 billion in the previous fiscal; the government is aiming for a meaningful rise in exports in FY23 and along with a weaker rupee, this augurs well for exporting sectors.

FIIs seem to be on a selling spree although the quantum might have come down. Is it the global realignment that is happening or there are other reasons for FII selloff?
The rising inflation and subsequent rate hikes by the US Fed and European counterparts, fear of global recession, and depreciating currency are the main reasons for the selloff in emerging markets (EMs).

A significant part of FII outflows were from the emerging market funds. Since India’s allocation in emerging market funds had risen significantly over the last couple of years, exits from emerging markets impacted significantly.

Also, India is trading at premium to other commodity-based economies like Brazil and Indonesia which could be one more reason for rebalancing across EM economies.

However, since commodities have come down sharply and restrictions placed during the start of the Russia-Ukraine war on commodities export are easing now, we can see the second leg of rebalancing happening soon.

Further, Indian equity market valuations are now attractive due to strong earnings, and India could soon become a preferred investment destination for FIIs.

What are your views on the earnings declared by India Inc.? IT earnings were more or less a mixed bag, do you see a similar pattern for other sectors as well?
While the demand in the Indian IT space remains robust, the supply side challenges may restrict revenue growth going forward. Adding to it the higher employee costs will impact the margins that have declined to pre-covid levels.

Furthermore, higher interest rates globally and a slowdown in the US are unfavourable for the sector, and we see the earnings follow similar patterns in the medium term.

However, other sectors like Auto, Capital goods, Consumer goods, Building Materials, etc. will get benefitted of a cool-down in commodity prices and can see a potential reversal in margins compression and volume degrowth.

Where do you see this as a wealth-creating opportunity if someone has 5 years or more?
We are in uncertain times but that does not change the fact that while the macro views are uncertain, the outlook for Indian Equities is still opportunistic due to strong earnings growth.

Following a contrarian style of investing, we look at this as an opportunity for the long term as most market lows happen, from very bleak situations since markets discount the future upsides from these bleak situations.

What would you advise to an investors’ whose portfolio is down say 40% in value and only has laggards? How should one manage such a situation?
If the value of an investor’s portfolio has fallen by 40 per cent, they have probably invested into momentum sectors/stocks. It is important to study the portfolio.

One can look to purchase more from stocks that are fundamentally strong and wait for the mispricing to be corrected.

For the stocks which are not fundamentally strong, it is good to wait for a short-term upmove and reduce the exposure, even if it is at a loss.

Investors can look to clean up the portfolio and switch from underperforming sub-par businesses to high-quality businesses available at corrected valuations along with an increase in investments in quality stocks that have corrected well. The averaging will help recover value earlier.

Going by the recent data, SIP culture will only pick momentum in near future. What can a 20 Year SIP of more than Rs 1000 do to your overall corpus?
A monthly SIP of Rs 1,000 for 20 years assuming annual compounding at 11% will result in a portfolio of Rs 8.6 Lakh against an investment of Rs 2.4 lakh.

Investors can also utilize the intermediate correction to increase SIP or do a top up, so as to enhance the overall portfolio corpus.

If someone in 20s wants to create a portfolio, should they bet on small & midcaps as Nifty50 companies are already matured in their businesses and growth models. What is the right way to look at the asset allocation mix?
In the long term, mid and small caps can do better if invested through a fund route. However, a retail investor in direct stocks may not be able to track the stocks well enough and may end up with a lower return than a large cap index as a result.

We suggest investing in a combination of largecap, midcap, and smallcap stocks. This provides a balance to your portfolio. This would depend on the risk appetite of the investor.

Not too many investors can handle the steep falls of small-cap stocks. Smallcap stocks are better used by more evolved investors and who are able to track market, sector, and stock cycles.

Evolved investors would be aware that markets swing between cycles of large cap and mid/small cap stocks. Those investors who are able to track these cycles can benefit from the same.

Investors who are able to study the operating model of small-cap stocks can also invest in small-cap stocks in a passive way for the long term. Retail investors can best allocate into small caps through funds rather than individual stocks.

In summary, we suggest investors be disciplined in their investing and allocate between market cap categories. Evolved investors could invest in small cap stocks directly as part of this allocation.

Most other retail investors can use mutual funds through SIPs as the best way to invest in the category of small-cap stocks for the portion that they have decided to allocate to this category.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)