ETMarkets Smart Talk: Earning Rs 1 lakh per month? Here’s how you can achieve your crorepati dream

In an interview with ETMarkets, Sood said: “India is a developing economy and as a result investments in equity cannot be ruled out as in the long-term index should grow,” Edited excerpts:

We are down by about 10% from highs. What is your take on markets amid global headwinds for FY24?
Indian equity market posted negative returns in the third month in a row, and we are expecting that volatility will also continue in the next few months as the interest rates in the US are expected to peak beyond 5.5% by Federal Reserve due to Geopolitical tensions and the collapse of Bank in the US.

However, the yields are inching up such as high inflation, the Russia-Ukraine war, and higher interest rates in the US.

This compelled investors to switch from the risk-on to the risk-off strategy. They will be happy to get a risk-free return of 4-6% than invest in a country where the currency is deflating 4-6% every year.

What should be the ideal asset allocation for someone who just started earnings with say Rs 12 lakh per annum? How can he/she start a crorepati journey? Will SIP work and what is the kind of saving that needs to be done every month?
Diversification is the key for any portfolio and the times we are living in today the main agenda should be to invest money in highly liquid assets which could be easily converted into hard cash during the time of crisis.

Asset Allocation varies from individual to individual & depends on various factors like your age, risk appetite & one’s expectations from the investments.

For e.g. an individual in their early twenties rightfully starting his/her career would have a higher risk potential to grow their money as compared to a retired individual.

There is a notion, ‘the higher the risk higher is the return’ and therefore a younger individual should be able to invest a bigger chunk of the money in volatile markets for profitable returns.

The ideal asset allocation of investments for an individual earning Rs. 1 lac per month would again depend on the factors listed above.

India is a developing economy and as a result investments in equity cannot be ruled out as in the long term Index should grow. Investment in equity through SIP could be a very beneficial starting point as it helps in cost averaging.

As mentioned earlier Diversification is the priority and for someone who is just starting one should invest in both large caps which we call the blue chips along with the low caps which are highly risky but also comes with a package of higher returns plus the ELSS schemes for tax savings.

Gold Bonds cannot be neglected as Gold as a commodity has proven to be one of the best asset classes for hedging against inflation.

Furthermore, a little chunk of the money should also be parked in risk free investments for fixed and safe returns.

As we step into FY24 – which sectors are likely to be in the leader and laggard category?
The start of the new Fiscal Year has brought many new investment opportunities in the Indian Equity Market, especially when the scenario has reversed dramatically again because of the recent crisis of US banks, and when other economies around us are literally crumbling.

Furthermore, according to the S&P forecast, it is anticipated that India’s GDP will grow at the rate of 6.3% through 2030 and is to become the third largest economy by then.

Some sectors are expected to play a major role in the growth of the economy in the coming decade and in the new Fiscal as well. We advise building a portfolio for the long term and continue increasing the portfolio size.

• Automobile Sector

A surge in demand has been witnessed in this sector during the year 2022-23. In October 2022, the rise in demand across all the segments has been observed on account of a good Festive season.

Talking about the hottest segment of this sector, EV, sales hit their highest at 429,217 units in the financial year 2022, up 218% YoY from 134,821 units in the financial year 2021. This growth is mainly the outcome of efforts and support of the Government.

Furthermore, the biggest players of the industry like Tata Motors and Hero Honda are at the forefront. All these factors make us hopeful for a shining 2023 for Automobile Sector.

• Renewable Energy

As the world is in the search of alternative fuel sources, the renewable sector has earned a lot of attention. Moreover, increasing environmental concerns also has put this sector into the spotlight.

As of now, capacity of renewable energy has doubled in India because of huge Government support and shift in the focus From EPC projects to energy generation and transmission.

It is up from 76.4 GW in March 2014 to 151.4 GW in December 2021. Even now, the government has more ambitious plans to ramp it up further to over 500 GW by 2030.

• Sugar Sector

The government of India has taken a lot of measures in the past couple of years that have changed the dynamics of the sugar industry.

Government, with the aim to enhance India’s energy security, reduce import dependency on fuel, save foreign exchange, address environmental issues, and give a boost to domestic agriculture sector, has been promoting the Ethanol Blended Petrol (EBP) Program.

Ethanol blending in petrol in India has risen successively from 1.53% in 2013-14 to 5% in 2019-20 to 8.10% in 2020-21 and now to as much as 10.17%.

Furthermore, the GOI has set the target of 20% of Ethanol blending in petrol by the year 2030. All these efforts of the Government remain us high for a momentous 2023 for the Sugar Industry.

• FMCG

Overall, FMCG sales in the country is expected to grow 7-9% by revenues in 2022-23, driven by price hikes, while volume growth will be muted at 1-2%, Crisil said. The sector has grown 8.5% in revenues and 2.5% in volumes last fiscal.

We are expecting that higher minimum support prices for key crops and a decent harvest should encourage rural growth and help ongoing recovery in rural demand for FMCG products.

Over 35% of yearly FMCG revenue comes from the Indian rural areas. These projected growths in Indian villages in 2023 are crucial for overall revival of the sector.

• IT

Information Technology is a sector that will most likely be one of the developing industries in the coming years, as India’s economy requires more hardware, software, and other IT services.

IT budgets are expected to grow by 13% YoY in 2023, with a median increase of 5%, at a company level’, states SWZD’s Annual Report on IT Budgets and Tech Trends.

Further, recent released reports suggest that India’s IT sector is all set to create 3 lakhs jobs in 2023.

• Banking Financial Services and Insurance (BFSI)

During FY16-FY22, bank credit increased at a CAGR of 0.62%. As of FY22, total credit extended surged to US$ 1,532.31 billion. Credit growth is expected to hit 10% in 2022-23 which will be a double-digit growth in eight years.

As of November 4, 2022, bank credit stood at Rs. 129.26 lakh crore. At the same time, the NPAs in the country have largely decreased with robust RBI policies and various legislations.

Furthermore, Bank deposits stood at Rs. 173.70 trillion as of November 4, 2022. By 2025, India’s fintech market is expected to reach Rs. 6.2 trillion.

Amidst all these Geopolitical tensions, the Indian BFSI sector is like a beacon as the monetary policies in the country have been able to manage inflation without damaging the growth of the economy.

• Healthcare

The healthcare sector has been in the news for quite a long time, especially since the pandemic. The healthcare sector is quite broad and includes various industries like the medical equipment industry, pharmaceutical industry, diagnostic industry, hospitals, medical tourism, clinical trials, health insurance, and more.

This sector has seen a growth of 22% CAGR from 2016 and the pandemic gave it a boost to grow at 39% CAGR. Furthermore, the sector has seen one of the highest FDIs of approximately US$ 19.90 billion from April 2000 to June 2022.

Furthermore, the estimated expenditure of the Department of Health and Family Welfare in 2023-24 is INR 86,175 crore, approximately 2% of the total central government expenditure for 2023-24. This is an increase of 13% over the revised estimates for 2022-23.

Though we are optimistic about the Indian growth story in the long term, but still we shouldn’t ignore the prevailing Geopolitical tensions & current scenario of the global market that might lead to a reduction in EPS estimates for Nifty Index companies which may lead to a fall in the Indian markets.

As per the current state of affairs, Cold War escalating between Russia & Western Countries is a point of concern. Moving on, the prices of crude have rallied about 15% in the last 10 days due to a cut in the production of crude oil by OPEC.

This would further lead to a hike in crude oil prices and many related sectors like Paints, Tyres & Oil Marketing Companies can get adversely affected.

Therefore, one has to be extremely cautious while making any investment decisions and has to study the market in detail.

What is your take on SEBI changes made recently on AIF, Debt market, disclosure norms, ESG? What message does it give out to the wider investor community?
Recent announcements made by SEBI whether it is of a new fund-blocking facility for secondary market traders or of a stricter regulatory framework for Alternative Investment Funds, will strengthen the nation’s securities market and enhance the corporate governance ecosystem.

This new Fund-blocking facility will act as a safeguard of retail investors’ Funds parked with stockbrokers/ clearing members and also allow them to earn interest on blocked funds in their savings account.

Additionally, this will facilitate direct settlement with clearing corporations and more transparency without passing through pool accounts of intermediaries.

Further, the new rule of SEBI that allows private equity funds to sponsor a mutual fund house or institution will bring in strategic guidance and talent as well, fueling the industry’s growth.

Moving to the SEBI’s another significant initiative, setting up a Corporate Debt Market Development Fund (CDMDF) in the form of an AIF, will act as a backstop facility for the purchase of investment-grade corporate debt securities during times of stress.

Moreover, several updates to the LODR Regulations and the decision to implement an enhanced framework for ESG (Environment, Social and Governance) disclosures by listed entities, ESG ratings in the equity market, and ESG investing by mutual funds will facilitate a balance between transparency, simplification, and ease of doing business in an evolving domain.

Do you feel fears of the global recession in FY24 is real? If yes, how will it impact India and India Inc. in terms of earnings?
The ongoing concern about a recession in 2024 is uncertain, and it depends on various causes such as geopolitical tensions, trade policies, rising inflation, supply chain disruptions, and global economic conditions.

While it is difficult to predict the future of the global economy, some experts believe that a recession in fiscal 2024 is a possibility.

In terms of its impact on India, like other countries, a global recession could have significant implications. India is a major exporter, and any slump in the global economy could negatively impact demand for Indian goods and services, leading to reduced earnings for Indian companies.

Moreover, a global recession could also result in decreased foreign investments in India, further worsening the economic impact.

More than 50% of the smallcap stocks are down more than 60% from their 52-week high. Does this mean that this space could see a rebound in FY24?
We cannot expect a broad-based rally in small caps as we observed after COVID-19. Expectations from the US Fed would be to pause or start reversing interest rates from the second half of the year.

Therefore, it could be said Small cap stocks with healthy fundamentals & strong future earnings will attract FII’s as wealth is created more in small cap than in blue chips.

As mentioned, small caps with strong fundamentals have the tendency to double or fourfold your investment in a short span of time which is a possibility to be seen in FY24.

We are seeing a gradual fall in SIP – is it attractive FD rates or equity markets being range bound?
Yes, it is true there has been a significant drop in SIP investments in India.

• This could be due to various but first and foremost the rise in the interest rates being offered by the fixed deposits. Since the past year the Reserve Bank of India has raised the repo rate by 2.5% which showed its positive implications on the FDs and today banks are offering interest rates in the range of 7-8%. The following return is completely a risk-free return and therefore it becomes a lucrative investment for individuals to invest their money and enjoy the returns.

• Moving on, markets are extremely volatile. Firstly, they are range bound which means individuals are not getting favourable returns and the Index has given a negative return of around 2% in the past financial year. Currently, the sentiment in the market is not positive due to which money is being pulled out of the equity markets and being settled in risk-free high-interest returns.

• In addition, we might see a bigger fall in SIP investments in the coming times due to the new tax regime announced by the government. ELSS schemes could be severely affected as the tax exemption has been raised to the limit of 7 lacs from 5 lacs before.

Earlier on an income of 7 lacs one could get a rebate up to Rs. 1, 50,000 and save up to Rs. 46000 of taxes which also comes with a lock-in period of 3 years but today an individual has tax exemption till the income of Rs. 7 lacs. Henceforth, ELSS investments will reduce significantly and again money will be pulled out of the markets in future.

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