S. Naren Explains the Market Outlook: Asset Allocation, AI Boom, IT Stocks & Global Investing

[00:00:00] Speaker 1: thank you everyone for joining on this call on this friday evening my name is adit kapoor i'm the lead product specialist for icisa prudential asset management company uh welcome you all on this phone call we have tried every time to connect with you with our views on the markets and what is our understanding on the markets in the current juncture um in that you know endeavor today we have mr shankara naren our chief investment officer and executive director and a well-known figure in the asset management business before i hand over to naren i'll just read out the standard disclaimer uh for the con call this call is intended only for the invited participants recording copying retransmission live streaming or reproduction of the call whether in full or in part on any platform including social media is strictly prohibited without prior return permission from icica to amc by continuing to participate you agree to these terms icica potential amc reserves the right to take appropriate action for any violations thank you uh you know for joining on now i hand over to naren over to you with your views welcome to all of you it's a pleasure talking [00:01:28] Speaker 2: to all of you on a regular basis as most of you know uh we are believers in four concepts valuation cycle sentiment and trigger we like to be very positive when the valuations are low we like to be very positive when the cycle is low or starting we like to be positive when sentiment is very negative remember that sentiment doesn't work in a different way and triggers are always difficult to understand what trigger leads to for example if you look at the last one month there has been a good correction in some of the semiconductor stocks and a rally today it is very difficult to predict what works as a trigger when valuation cycle and sentiment favors the market to fall see in india we have over the years had a very good macro trend of interest in india and uh post 2023-24 we had a situation where markets were not cheap in fact markets were a bit overvalued and that forced us to talk about asset allocation on a consistent basis asset allocation has many categories which is multi-asset balanced advantage aggressive hybrid and recently you know we had uh two areas of asset allocation one is uh balanced hybrid and uh a pass and a multi-asset active fund of fund again asset allocation so we have created multiple vehicles for asset allocation each in a different way for example if you take balanced hybrid category it has 40 to 60 percent in equity and 40 to 60 percent in debt so it becomes a very interesting category for uh asset allocation which we launched last month so uh you know the entire experience over the last two to two and a half years in asset allocation categories has been very good given that the markets have not gone up substantially and uh therefore uh we have been uh it has been a good investing experience considering that many of our asset allocation oriented strategies are large of course balanced hybrid is very small but it was launched only last month uh we have also believed in specialized investment funds where we're very thankful to the regulator for starting this category and coming up with a very interesting regulation for us to launch uh as a framework uh what we believe is that uh you know specialized investment funds are not funds where we are actually taking any leverage or anything like that because the goal what we have seen over a period of time is that we need any fund and i say say prudential to be scalable and it has to be an investment and it has to it has to have a process what we call sip because the reason is that if anything is not scalable it doesn't help i say say prudential to launch a category similarly there is no point in becoming a trading category it has to be something where you can invest for the long term and uh and uh we have to keep working on processes so that even though even if we make periodic mistakes we try to learn from it and improve over a period of time this has been our framework so the specialized investment cat fund category which the regulator has brought in over the last one year is one of the most interesting categories because uh it involves handling uh derivatives and uh and we believe in a model driven approach and we don't believe that uh we have to look for a situation where we need to look for aggressive funds that is the kind of situation we are in where are we in the market the market the macros are reasonable not exceptional because of the problems in the middle east region and the fact that oil has gone up it is also reasonable because the monsoon is uh is has a worry of el nino and so far the monsoon has been below average not by too much but but below average and these do and as most of you know that the global world has too many geopolitical issues so if you look at the earnings uh we have a situation where the earnings is uh is good but valuations are not cheap if valuations become cheap we would be very happy but uh for everyone to put big way into equity and not into asset allocation oriented categories or in specialized investment funds but that is not the situation today people ask us when will fia money come i'm confident it will come in the next three years for it to come in a sustained basis india has to be the growth story and currently what has happened is that not because of india's growth story but because of the fact that artificial intelligence based growth stories like korea taiwan u.s and parts of japan have actually delivered much more growth money goes there it doesn't mean india is not a growth story it is only that other countries have been bigger growth stories in the recent past that is the kind of situation we are in why is it we don't worry about earnings because what people don't realize is that when you have inflation actually earnings is better and inflation is something which works sometimes positive for earnings so even if you look at the april to june quarter there were a number of companies which actually benefited out of earnings at this point of time so why have fi has not been investing in a big way particularly from october 2024 till uh till i would say june 2026 it was primarily because most of the the bigger growth area was artificial intelligence and that money was not meant for india because india was not seen as the beneficiary of artificial intelligence stories at this point of time so the regulator has actually come up with a very the reserve bank has come up with a very interesting framework for fcnr deposits and that is likely to lead to a situation where the domestic liquidity is likely to be comfortable so we are big believers in asset allocation unconstrained investing and moderate returns what do we believe believe in called unconstrained investing is that you can invest in a wide variety of sectors and stocks not a narrow stock like technology or or let's say fmcg or something it has to be unconstrained because if something is not unconstrained what happens is you are not in a position to invest for the long term you have to both buy and sell and that won't be the case uh unless it is unconstrained uh we have big believers in specialized investment fund we must be the second amc who has launched four products why did we launch four products we launched four products because there are interesting all the four products that have been launched are interesting so if you look at the x top 100 special long short uh specialized investment fund it is meant for defensive investing in small and mid caps if you look at the equity long specialized investment fund it is meant for long-term defensive slightly defensive uh investing in in equity does it need to be defensive all the time the answer is no uh if you look at hybrid long short specialized investment fund it is meant for hybrid investing and we believe that uh that is itself defensive but within that our goal is to deliver a good risk adjusted experience over the long term and the fourth which i believe is the most cautious product in the way we are running it it is the active asset allocator special long short specialized investment fund here we have a wide variety of products to invest in we can invest in reit we can invest in invits we can invest in exchange traded commodity derivatives we can invest in equity large cap mid cap small cap we can invest in debt of all types and we can use derivatives to hedge our equity allocation uh as per the norms of sebi for specialized investment fund so what happens is the active asset allocator funds turns out to be the most cautious of the specialized investment funds obviously if the market shoots up it is the product which is likely to not do that well because of the same reason that it is defensive on the way down that it will be defensive on the way up as well so that is the kind of situation so what has happened is that these four specialized investment fund along with the sector rotation specialized investment fund which we have not launched yet becomes a very interesting way to invest for the long term uh the advantage with all these categories is that you have the ability to be aggressive and you have the ability to be defensive so if you take for example the equities a long shot specialized investment fund it is possible to be fully invested in the fund similarly for example in the x top 100 specialized investment fund it is possible to be fully invested in the fund also so it is not that the fund has to be always defensive it can be aggressive but as an asset management company since we believe that the market valuations are not cheap or dirt cheap we will not be running it as aggressively as a pure equity fund so if someone wants to get someone is extremely positive on anything they can choose a pure equity mutual fund and not choose a specialized investment fund for investing having said that we believe that the whole flexibility offered to in the specialized investment fund by the regulator makes it very interesting for long-term investment so broadly uh this is the kind of situation uh within the unconstrained equity categories we are believers in specialized invest uh in uh systematic investment plans and systematic transfer plans we like multiple categories in unconstrained equity for example we like value as a category we like special situation india opportunities as a category we like flexi cap as a category we like business cycle as a category we like multi-cap as a category so frankly we like multiple categories within the unconstrained area but our belief is that a pure equity fund is likely to be more aggressive than a specialized investment fund but at the same time we believe that there are investors who are extremely positive on equity we are believers in equity but we are believers in a moderate return situation where we believe that categories like specialized investment fund and hybrid categories like balanced advantage aggressive hybrid balanced hybrid and multi-asset are also interesting as most of you know uh some time back we were not very positive on gold and silver now we are not we are not saying that uh we are not positive but at the same time we don't believe that investing stand alone in gold and silver is justified at this point of time because even today after the correction in gold and silver and because of the customs duty which is high we are not seeing a situation where the category is extremely cheap that uh that one can invest people ask us how do you look at what do you think of international investing but currently one has to remember that rupee is not a great category category like gold and silver for valuation we make use of nifty to gold ratio and nifty to silver ratio to determine that and that is the kind of situation over the last few months people have asked us a question uh what do you think of international investing frankly we were very positive in international investing in uh earlier years currently we do not have any open funds but currently one has to remember that rupee is not overvalued rupees possibly undervalued and most of the global markets have done much better than india so in our framework of valuation cycle sentiment and trigger we believe that this is a time which is not as attractive to invest globally as it was two to three years back but kind of questions that have been asked over the last few months suggest that everyone is extremely positive on this area but if you look at the valuation cycle and sentiment we would argue that it is no longer a time to be aggressively investing in global areas at this point of time uh we do believe that uh you know of course investing some amount of money or investing through a system in a systematic way is fine and as an asset management company we do not have any open products to invest in at this point of time so broadly this is where we are and uh you know as as an asset management company our goal is to manage other people's money our goal is to manage it in a good risk adjusted manner investing is not arithmetic so no one can get everything right but our goal is to give investors a good experience and on a continuous basis we try to introspect from the mistakes that we may be committing in investing and that is what as an asset management company is a prudential asset management company has been doing over the last 30 years so at the same time the entire mutual fund industry is a very very interesting industry to invest in and we think that thanks to the good regulations and the kind of products that the mutual fund industry has created there are very very interesting ways for investing in the long term at this point of time in mutual fund products this is what we set out to do and now i would request adit to ask questions that you may have on the product and we can have a detailed look at them or anything else that i have not covered which adit or and you want want us to cover we are extremely happy to answer that in a good way there is one question people keep asking me what will be needed for us to be much more positive on equity uh we would want to have a better geopolitical situation a better geopolitical situation unlike what we have at this point of time uh we would like to have a situation where the market is slightly cheaper and we would like to have a situation where we are very comfortable on what is going to happen to india due to artificial intelligence uh we have a situation at this point of time where we are not sure of all these things to the same extent but if any of these three things if all the three things become comfortable we would be much much more positive on equity today and not look only as at asset allocation a systematic investment plan systematic transfer plans and specialized investment fund if we reach that situation we will definitely come back to you because this is something people have asked us all the time at the same time if you look at it uh if you compare 2024 june to september with 2026 july we are much more constructive on the market than we were in 2024 so and the fact that most of the global markets have become much more costly than they were in 2024 so are we more positive than on the market than we were in 2024 the answer is yes and that is the kind of situation we are in uh over to you adit and i would be happy to answer any questions that the customers may have on any of the on any of the areas and we would be glad to explain it in greater detail over to [00:18:22] Speaker 1: you adit thanks naren uh naren there has always been a question on it as a sector because last five years we have seen it you know getting hammered uh from you know typically in november 2021 kind of a situation till date and ai is one of the reasons uh we have also looked upon it as a sector being underperformed how do you see it as a sector at this juncture and what is your view on the sector itself [00:18:52] Speaker 2: you know there is a time you know there is a time when you are very positive on a sector there is a time when you are very negative on a sector uh you know over the years you know we had an experience in media sector in the media sector we thought the sector was coming down so let's look at the sector and what happened was the sector got disrupted due to digital advertising and uh you know internet uh being a vehicle for delivery due to which you know many of the media stocks kept coming down and they never recovered in fact most of the media stocks have not recovered after that you know one of the factors that we have put into place is if you feel a sector-wide disruption uh we will not try our best to actually recommend a sector fund even if it has done badly and that is the call we have taken so due to that you know in the last six months you know we have not recommended standalone technology fund there are a number of people who ask us what to do if i if we are more positive on technology we tell people why don't you choose a category like export and services which is much more unconstrained than the technology fund and we believe that that framework is what we would recommend if people want to consider it otherwise we are as most of you know uh we are we believe in unconstrained funds and both our value fund and our special situation fund has been overweight the technology sector and that we kind of framework would be a better way to invest in the in the fund or choose a fund like aggressive hybrid fund of fund which is also overweight it but it is not an it fund so therefore we believe that these are areas that one can consider if one is positive on it because we are worried that if we get people to invest in it and we realize that artificial intelligence has disrupted the sector the losses can be bigger and that is the reason we have not marketed a standalone it fund [00:21:03] Speaker 1: narin we have seen that we are looking at a decent credit growth coming in and the balance sheets on the banking side are decently good uh despite that banking as a sector has not done well uh what's your view on the banking uh segment at this point of time you know nbfc's and entire financial services sector [00:21:23] Speaker 2: in the last quarter you know thanks to very high credit growth there has been a problem in net interest margins in the sector but overall uh we like the sector a lot at this point of time for investing and uh for people who both buy and sell they can consider uh banking and financial services as a sector uh the reason why it could may not have done well is primarily because it is the number one holding of the foreign institutional investors and the domestic institutional investors and that that has played a role in uh the lower returns of the sector having said that we are currently positive on the sector but we don't think you can make meta returns in the sector because of the extreme over ownership among all the investment institutions [00:22:11] Speaker 1: then as you mentioned there is geopolitical you know concerns which is first persisting for quite some time now and in that view uh what is the outlook for uh oil and gas as a sector at this point of time [00:22:27] Speaker 2: see what has happened in oil and gas which makes us very positive relatively positive relatively rather very positive is the fact that too many refineries have got into trouble because of so many accidents uh due to war and otherwise so what has happened is refining margins are at their highest ever in many years so we like oil and gas as a sector uh and uh having said that you know this is based on an assumption that there won't be a market acceleration in gulf region if there is a market acceleration in gulf region then you know this call can go wrong do i have more knowledge on any of about any than any of you on what will happen in the gulf region the answer is no we are believers that we don't understand what is going on in the gulf region so i believe that uh purely from a refining point of view we are [00:23:23] Speaker 1: positive on the oil and gas sector at this point of time um any view on the uh entire ai uh you know disruption that is going on globally and how it has played out in the last one month uh what can we expect going forward on the ai front it's tough to say every indian it services [00:23:46] Speaker 2: company says that we never did hardware but we were successful in it services so this time also we are not successful in it hardware but we will be successful in it services that is what many of the companies tell us whether that is true or not we'll come to know in the next three to five years if you had a view and some of the listeners to this call may have a more knowledge on ai and its impact on indian company and country i am a believer that if you tell me that there is a positive impact then i would be much more positive on equities i am a believer in moderate return more because i am not sure on what will happen due to ai on indian economy and on indian companies i don't have full clarity on that [00:24:30] Speaker 1: thanks naren um i guess we have uh taken up most of the questions that were you know commonly coming from the investors at this point of time uh any parting comments uh for the investors to sum up i [00:24:43] Speaker 2: think specialized investment fund is a very interesting area for investment uh we have created our four categories and uh we believe that uh we believe that the four categories that we have launched at this point of time which is the equity x100 is a defensive way of investing in small and mid cap the equity long shot is a is a way of investing in equity and with a fund manager available to try to uh hedge the positions if they want to uh the hybrid long shot where the investor can get a good experience in a hybrid kind of specialized investment fund and uh the the active asset allocator one which is the one which uh frankly many investors should consider because it is lower risk we believe that it is a product where investors where we as fund managers can invest in a wide variety of products uh whether it is exchange traded commodity derivatives reit invert equity debt equity all all types and uh we think that it is an area to invest in for people who want to be more conservative for long-term investment so that is something which is very clear we continue to like all our hybrid categories whether it is aggressive or whether it is a hybrid category or whether it is a hybrid hybrid category or a multi-asset category and um and uh and multi and uh all and uh active fund of funds that we have launched in the multi-asset side and the dynamic asset allocation side so we have a wide variety of strategies which are available which are available in the asset allocation space and one can always consider systematic investment plan and systematic transfer plans in unconstrained funds for the long term our market view is that one should do asset allocation one should practice unconstrained investing and one should expect moderate returns in the market the day everyone is clear on geopolitics and what happens to this year's monsoon and artificial intelligence one one will have a better clarity on what kind of returns to expect but at this stage as we speak it is impossible to make definitive views on all the three that's what it is as an asset management company managing other people's money we are very conscious of the responsibilities that it entails and we will try our best to make a good investor experience for our investors but at the same time one has to remember investing is not arithmetic no one would have imagined one year back that you would have a war uh which never in the middle east which can cause so much trouble so there are too many imponderables and those imponderables force us to look for both asset allocation and specialized investment funds as a way of investing thank you for participating in this call if you have any further doubts you can contact us and i'm sure they'll be in a better position to answer uh and give you whatever clarifications that you may need thank you all for participating thank you everyone thank you [00:28:00] Speaker 1: noreen for bearing time for us all the best thank you thank you for joining in investments in specialized [00:28:07] Speaker 3: investment fund involves relatively higher risk including potential loss of capital liquidity risk and market volatility please read all investment strategy related documents carefully before making the [00:28:17] Speaker 2: investment decision mutual fund investments are subject to market risks read all scheme related documents carefully