ETMarkets Smart Talk: Ajit Deshmukh of Equirus hands out his secret formulae to create wealth in long term

In an interview with ETMarkets, Deshmukh said: “Investors can allocate long-term capital in a staggered way in equity as the valuations are nearing long period averages. The returns over the next 3-4 years can be higher double digits from these levels,” Edited excerpts:

Markets have bounced back swiftly but it is tsill trading around the Budget Day lows. Where do you see D-Street headed in FY24?
From bounce back we are once again back to volatility. If anything, FY24 is likely to witness is continued volatility. From unknown volatility, we are heading to known volatility.

What was unknown at the start of 2022 was the scale and duration of the geo-political tensions and whether the scares of the pandemic will fade.

In 2023, we know that geopolitics is here to stay, but at a lesser intensity, and pandemic scares have faded away. Rate hikes are known but the impact and quantum are still unknown. Global liquidity is likely to moderate.

In a backdrop of less liquidity and higher external rates (of developed markets) emerging markets including India are likely to be less favoured.

The positive for India is its strong fundamentals. However, a higher external rate environment asks for very high risk-adjusted returns which makes any emerging market asset class less favoured. Overall, from unknown unknowns, we are in for known unknowns this year!

Which sectors are likely to hog the limelight in FY24 — and why?
Infra, Technology, Auto (Electric Vehicles) Renewable Energy, Construction, and Defense sectors are likely to do well.

Railways supported by government thrust on railway capex could be potential areas of strong growth.

Any sector which could turn out to be the dark horse?
Uncertainty and volatility always open up pockets of opportunity. During the course of the year, we could see sectors or companies that were unattractive earlier turning attractive.

Fundamentally, for India the infrastructure sector supported by government push and consumer-driven sectors led by domestic demand are positives.

While there are clouds in the upcoming agri season due to El-Nino, if the weather gods are merciful, we could see rural demand picking up as well.

Specialty chemicals were talked about the most some years back and now it is EV as well as green hydrogen industries. Will the next decade belong to companies operating in these 2 sectors?
Yes, the need for a green ecosystem, and pollution-free transport to reduce the fast-increasing challenge of global warming is on the top agenda for all governments across the globe.

This has led to a rigorous effort by industry players to scout for an alternate source of energy for transportation and move away from fossil fuels. Billions of dollars are being spent on R&D in electric vehicles, and hydrogen-based fuel, among others.

We believe it to be majorly a large-cap play, but small and innovative cos can also benefit from it.

How should one play small & midcap stocks in FY24?
Small-cap stocks have the strong potential to deliver better returns compared to larger companies. We believe despite ongoing economic turmoil in the west, the Indian economy stands at cusp of growth and remains the land of stability against the backdrop of a volatile global economy.

One should look at the specific strong management-driven companies with solid fundamentals and use a ‘Buy on Dips’ market strategy.

In terms of portfolio construction – how much should one allocate to largecaps, small & midcaps, gold, fixed income, and US stocks and why?
Strategic Asset Allocation plays a key role in allocating capital. The key driver of returns in the long-term for any investor is by far Asset Allocation and not market timing or manager selection.

It’s extremely important to get the Strategic Asset Allocation right and one must spend sufficient time to arrive at Strategic Asset Allocation.

Once the Asset Allocation is locked and the Debt : Equity : Gold ratio is decided, investors can further diversify across asset classes. Most of us have a home bias when it comes to investing in Equity.

It’s prudent to allocate capital to global funds as well in the portfolio as that helps in diversification and compliments the overall equity portfolios.

15%-20% allocation to global funds specially US markets is a meaningful allocation and can work well for the equity portfolios. 40% – 50% exposure at the portfolio levels should be given to large caps.

This provides a fundamental strength to the portfolio as large caps are businesses with relatively better vintage and balance sheet strength compared to Mid & Small cap.

The balance can be allocated to Mid & Small cap Space depending on your risk appetite. Small caps are more volatile and see a sharper drawdown in a bear market and vice versa. The volatility is higher in Small caps compared to Large Caps.

Depending on the Asset Allocation one should ideally allocate capital to Fixed Income. The most critical area while building a Fixed Income portfolio is Credit quality.

One should ideally make a portfolio of AAA-rated securities and shy away from funds or bonds with lower credit ratings. Return of capital is more important than Return on Capital when it comes to Fixed Income investment.

Gold has always worked as a natural hedge to Equity and Fixed Income and has low correlation to both asset classes in the long run. 5% – 10% allocation at a portfolio level works well mostly.

After the recent correction, many stocks have come down in double digits. How should one avoid catching a falling knife?
In any market episode or correction, there will always be pockets of opportunity wherein valuations for companies will look attractive.

One can look for such quality stocks at attractive valuations. One should remain focused on well-performing companies and honest management.

How will investors create wealth in FY24 – will equities play a definite role or other asset classes will dominate investors’ interest?
Equity is a preferred asset class when it comes to creating wealth. Equities have always rewarded investors over long periods and is the best asset class over a 10-plus year period.

Investing in equity is a game of odds and the odds in equity investing are against the investor if investments are done for the short to medium term (

To create wealth, one needs to allocate capital to businesses in growing economies and stay invested for the long term.

The relative attractiveness of every asset class keeps changing and that’s the same for equity. Currently, the markets have given muted returns in the last 1.5 years and are mostly flat.

Having said that, Nifty EPS has moved from 652 on 1st Sep’21 to 850 as on 14th Mar’23 and the Nifty trailing PE for FY’23 is 20x and forward PE for FY’24 is 17x.

Investors can allocate long-term capital in a staggered way in equity as the valuations are nearing long-period averages. The returns over the next 3-4 years can be higher than double digits from these levels.

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