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    ETMarkets Smart Talk: Rs 8-trn opportunity! AIF is growing much faster than MFs: Ajay Vora


    Ajay Vora of Nuvama Asset Management, believes that alternative investment funds (AIFs) are growing faster than mutual funds (MFs) and this trend will continue. He also stated that with the Nifty at 20,000, the Indian market is still not expensive and has strong earnings growth potential. Vora mentioned that there is growing interest in alternative investments, particularly from Tier-II and III cities. He also noted that investors are moving away from traditional fixed income products towards higher-yielding structured credit products.

    “Entire AIF category put together is approximately Rs.8trn vs Rs.45trn for MF. AIF is growing much faster than MFs and we believe this will just accelerate from hereon as well,” says Ajay Vora, Head Equities, Nuvama Asset Management. In an interview with ETMarkets, Vora said: “NIFTY @ 20k is still not into expensive valuation zone especially when earnings growth is likely to be strong at 14%-15% over the next 2-3 years” Edited excerpts:

    IPO mania is back, and we are seeing a flurry of companies launching their public offerings in the past few months as Nifty scales Mt 20K. What are your views on this exuberance?
    We have seen these kinds of phases multiple times over the last 1.5 decades whenever mid and small cap indices rally sharply in a short span of time.

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    Opportunistic unlisted companies do get an opportunity to raise money on the back of rich valuations, ample liquidity and euphoric sentiment.

    However, investors should always exercise caution and invest only in quality companies at reasonable valuations as most of these companies would have limited track record vs already listed peer set.

    Nifty@20K – how are your reading India compared to peers?
    NIFTY @ 20k is still not in the expensive valuation zone especially when earnings growth is likely to be strong at 14%-15% over the next 2-3 years.

    However, considering the sharp run of 20% over the last 6 months, one should expect some sort of consolidation, or a range bound market till we get further clarity on the certainty of this earnings growth for FY25 as well.

    If we look around most developed or emerging economies, India clearly stands out in terms of long-term growth potential and that is what will excite the FII community who are still underinvested vs their historical holdings.

    There is growing interest in alternates especially from Tier- II and III cities. How are you reading this trend?
    Entire AIF category put together is approximately Rs.8trn vs Rs.45trn for MF. AIF is growing much faster than MFs and we believe this will just accelerate from hereon as well.

    Alternatives are meant to offer customised and scalable solutions to investors which can consistently deliver higher returns.

    With the knowledge arbitrage gradually narrowing we are seeing investors from smaller cities too demanding these alternative solutions.

    Between Debt and Equity where are your investors looking at when it comes to funds?
    Within debt we are seeing investors moving away from traditional fixed income products, especially post changes in tax regulation. This in a way has helped other long-duration structured credit products which are offering much higher yields.

    Additionally, equity as an asset class where Indian households are significantly underinvested is seeing increasing allocation, evident from rising monthly SIP amount.

    SMID as a category has benefited from higher inflows which clearly shows investors’ improving long term investment horizon.

    We have also seen encouraging responses to our recently launched PMS “NEXT” which is based on key themes of Premiumisation, Globalisation and Transformation.

    Are we seeing any FOMO in the small & midcap space? What are your views?
    There is clearly a lot of interest in SMID as a category from domestic investors due to stark outperformance over the last 6 months. However, this has been backed by a strong corporate earnings outlook and years of underperformance.

    We believe that there can be some consolidation after such a sharp rally but companies which are aligned to this theme with strong earnings outlook run by quality management can significantly outperform.

    SIP money crosses more than Rs 15000 cr for the second straight month – can we say that retail investors have come off age and we are looking at more matured
    As we discussed, Indian households are significantly underinvested in equities, and we have gradually seen this monthly SIP number doubling over the last 2 years.

    This clearly shows investors’ confidence in the India story and if earnings continue to compound at 12%-13% we should definitely see much higher allocation going ahead.

    Although FIIs flows have been negative but there is tremendous push from the FDI route which is more long-term capital for India. Is it the growth prospects which is pulling money into Indian markets?
    India is clearly an oasis of growth across developed and emerging economies. It is very difficult to find an economy which can have a nominal growth rate of 10-12% for the next 3-5 years at least.

    Additionally, we are seeing the emergence of newer sectors like renewables, semiconductors, data centres etc which can absorb huge long term capital through the FDI route.

    If someone wants to invest fresh money into Indian markets say Rs 10L in the age bracket of 30-40 years – how should one go about it. What should his/her portfolio look like?
    Investing has always been very subjective based on various factors like risk appetite, financial goals, lifestyle aspirations etc.

    I would say one should ideally have an allocation across all asset classes which can eventually help investments compound at 12-15% over the long term.

    This will ensure much higher inflation adjusted earnings and will can care of all financial goals.

    Is there any sector(s) which according to you is/are looking overheated?
    We are still not in that euphoric valuation zone across most sectors, however sectors like capital goods which are order book driven and have limitations on execution are trading at the upper band of their historical valuation range.

    Any slowdown in incremental order inflow closer to election period can potentially pose risk to valuation.

    Things which one should avoid doing at a time when markets are trading at record highs?
    Whether markets are at record highs or lows, investing principles should never change and not losing capital is of paramount importance.

    And therefore it is very important to focus on basics like the nature of business, quality of management, return ratio metrics, free cash flow generation and finally valuation.

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