Given the run-up in the bellwether indices despite the economic slowdown — both global and domestic — investors are sceptical about further additions to these asset classes. Vikaas Sachdeva, CEO, Emkay Investment Managers, however, says one should continue to bet on equities. Excerpts from an interview:

What would you suggest as an optimum asset allocation for an investor in 2020?

I personally believe that given the way macro indicators are bottoming out, inflation (core) being on the benign end of the spectrum and the government’s interest to revive the economy, things should start bearing fruit by the time the festive season sets in this year.

The stock market should typically start recognising this and gain momentum a little earlier. Already, in recent weeks, we have seen the overall breadth of the market increasing and a lot more participation from the mid- and small-cap segments.

Hence, being in equity for a major part of your asset allocation makes sense. Having said that, we cannot ignore the risks globally. So, my way of counter-balancing this is to basically put in some money in gold — maybe 5-10 per cent of the portfolio.

Personally, I don’t think the time is right for a fixed-income allocation. One should let the dust settle down in terms of corporate rate downgrades and defaults.

One can expect some clarity on the government’s fiscal road map before one allocates some medium- to long-term money to debt.

On real estate, I believe that the time to pick up your dream house is around the corner. With interest rates at the current levels, as well as a surfeit of residential property, one can actually look at striking a good bargain and pick up some real estate.

Within the equity space, what would you advise — large versus mid/small cap; any sectoral preference?

Investors search for quality and names they trust. We might say a lot of things about where to invest, but investors look for some emotional connection before they invest in a particular fund or stock.

For instance, companies in (the) large-cap (segment) are known brands and there’s going to be a gravitational pull towards that, keeping that segment attractive.

There are opportunities within other segments as well.

Valuations are extremely attractive, and thus one should get into mid-caps, preferably, larger mid-caps. Investors can avoid small-caps at this point of time, because smaller companies will take some more time to gain momentum.

Having said that, an investor should consider allocating long-term money in equity at these valuations, rather than fussing about the market cap. Sector-wise, I would prefer being sector-agnostic and use a bottom-up technique to pick stocks.

Given an investor’s risk appetite, we suggest strategies across various market caps.

What can investors expect from the upcoming Budget? Are personal tax rate changes likely?

I believe the government has very little elbow room from the fiscal deficit point of view. Also, a cut in personal tax may not benefit the population at large. So I would expect some benefits on the indirect taxation part.

A discussion on a cut in LTCG (long-term capital gains) rates is already doing the rounds, I expect a lot more announcements that will help drive investors to capital markets this year. After all, a healthy stock market is important as it allows the raising of capital for entrepreneurs on one hand and channelisation of savings from investors on the other.

What are the key changes in investor approach or mindset you have witnessed over the past years?

At an industry level, there has been an evolution in the mindset of an investor.

For a retail investor, SIP is increasingly replacing conventional terms like FDs in his lexicon.

For savvier investors, seeking alpha through concentrated portfolios and an ability to take calibrated risks are manifesting itself in the growing appetite for PMS (portfolio management service) and AIF (alternative investment fund) investment options.

Institutions, in the meanwhile, are actively shifting to ETFs (exchange-traded funds).

This augurs well for the growth of the investment management industry as a whole, going forward.

Are Indian investors reluctant to pay for advice? How can investors distinguish between biased and unbiased advice?

Investors are still reluctant to appreciate the value of advice, by and large. That is primarily because the cost of distribution is usually baked into the eventual price one pays to invest. Besides, the emergence of DIY investment options like direct plans has further glossed over the need for paying for unbiased financial advice.

The last few quarters have been a reality check across all asset classes for an investor.

The need to be guided in choppy times like these, as well as the importance of customised asset allocation vis-à-vis his risk appetite, has been starkly demonstrated.

This is a learning curve for most investors and they will gradually learn to pay for unbiased advice or pay for it eventually through a poor portfolio performance.

Personally, I have always engaged an investment advisor to advise me — it keeps me grounded and curious to know that there is still so much I have to learn.

What are the gaps in terms of product availability across asset classes for Indian investors? Is there room for innovation?

Innovation will continue to be across existing product categories as well as the new ones. I believe innovation will now manifest itself across various other aspects like communication, access to different platforms as well as client on-boarding.

The next 10 years will be the most exciting for the emerging-market investment management businesses.

Do SEBI’s recent proposals to restrict the investments made by PMS (with respect to permissible investment instruments), stifle your capacity to generate higher returns?

Most of these proposals touch across various facets of the industry and augur well for the future. It will make the industry stronger.

However, one needs to understand that this is an industry catering to savvy investors, and hence the tendency to ‘mutual fund-ise’ it should be avoided.

It is a large enough industry with its own characteristics, and needs to be recognised for the same.

The only thing that is probably missing is an industry-level discussion with SEBI on several issues.