The Economic Times Wealth - August 29, 2022

26 Pages·2022·7 MB·English

T E T
HE CONOMIC IMES THE TOP

10 FREE
CREDIT
CARDS
P14
www.etwealth.co | Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | August 29-September 4, 2022 | 24 pages | `8
DO THESE
BALANCED
FUNDS OFFER
A SPIRITUAL
YOU AN
OUTLOOK
HELPS IN
INVESTING
ADVANTAGE? P6
Balanced advantage funds have
become popular with investors.
Find out if these funds can fulfill
the promises they make. P2
WHY IT’S TIME
FOR YOU TO
FOCUS ON
VALUE
P10
PITFALLS OF
STARTING
A BUSINESS
LATE IN LIFE
P13
cover ssttoorryy
02 The Economic Times Wealth August 29-September 4, 2022
By Sanket Dhanorkar
I
n the past 2-3 years, mutual
funds have seen enormous
inflows but one category
DO THESE
has emerged a favoured
pick. Dynamic asset alloca-
tion funds, or balanced advantage
funds (BAFs), have achieved a
haloed status among investors and
BALANCED advisers alike. Six new BAFs have
come in the past one year alone,
helping the category amass a huge
AUM of `1.83 lakh crore. It now
ranks behind only the large-cap
and flexi-cap equity fund catego-
FUNDS OFFER
ries.
The big attraction for investors
is the BAF promise of tackling
market volatility to ensure a
smoother ride to wealth creation.
YOU AN These funds are being touted as the
best of both worlds—they cushion
the portfolio against downsides,
yet are able to benefit from upsides.
Our cover story this week ex-
amines whether BAFs can deliver
ADVANTAGE?
on this promise. We also look at
how much hinges on the allocation
models that govern individual
funds and whether these funds
should find space in your portfolio.
Balanced
Promises aplenty
advantage funds BAFs dynamically adjust the allo-
cation to equity and debt according
have become to market conditions. But there
are wide variations in how they do
popular with this. Some funds shift the equity
allocation within a band of 30-80%.
investors. Find out Others have the flexibility to keep
the equity allocation from zero to
if these funds can 100%.
Apart from asset allocation
fulfill the promises calls, BAFs also actively hedge
their equity positions, which
they make. further helps limit losses during
downturns. When market condi-
tions warrant low exposure to
equities, funds may extensively
take positions in derivatives or
arbitrage bets to artificially dilute
equity allocation. The net-equity
exposure, adjusted for hedged posi-
BAF match equity returns at lower risk
These funds are able to cushion the downside while offering a healthy
participation in the market upside.
3-YEAR RETURNS
AVG ROLLING MINIMUM MAXIMUM STANDARD
FUND CATEGORY
RETURN % RETURN % RETURN % DEVIATION %
Balanced advantage 9.1 -3.7 20.4 3.0
Large cap equity 11.0 -8.2 28.0 5.9
Flexi cap equity 11.9 -10.5 37.9 7.0
5-YEAR RETURNS
Balanced advantage 10.3 0.8 21.3 2.7
Large cap equity 12.6 -3.4 26.6 4.0
S
E
AG Flexi cap equity 13.4 -4.9 28.6 4.9
M
Y I
T 3-year returns rolled daily over 3 years. 5-year returns rolled daily over 5 years.
T
E Data as on 22 Aug 2022. Source: Primeinvestor
G
cover ssttoorryy
The Economic Times Wealth August 29-September 4, 2022 03
tions, is much lower in such instances even Choice of 75 Net equity exposure (%) 61,500
as the fund’s aggregate equity exposure is
maintained above 65%. This is important the in-house 70 70 58,000 Sensex
to enjoy the tax benefits given to equity level
funds (up to `1 lakh long-term capital gains model 65 54,500 57,570
are tax free, and beyond that taxed at 10%, influences
while short-term gains are taxed at 15%). In 60 51,000
July, DSP Dynamic Asset Allocation Fund asset mix Edelweiss
was sitting on 66% gross equity allocation, 55 58 47,500 BAF
58
but had hedged 25% of the portfolio so its Pro and counter 50 44,000
net equity exposure was lower at 41%. cyclical allocation
models take 45 38,628 40,500
Singing different tunes
opposing stance
The most critical aspect of BAFs is how 40 37,000
to tackle market
their asset allocation calls are triggered. ICICI Pru
This shift is typically guided by the in- conditions. 35 33,500 BAF
34
ternal models of fund houses and can be
governed by very different rules. Swarup 30 30,000
Sources: ICICI Pru AMC,
Mohanty, CEO, Mirae Asset Global Edelweiss AMC 31 Aug 2020 31 Jul 2022
Investments, observes, “Not all BAFs are
the same. This is perhaps the only category
which has highly disparate offerings.” BAFs differ widely in asset mix and risk profile
For some funds, valuations are the
triggers for shifting money into or out of The category has funds with disparate risk prof iles owing to differing models and positioning.
equities. They hike exposure to bonds
EQUITY POSITIONING
when stocks are expensive and vice versa, ASSET ALLOCATION (%) DEBT POSITIONING
(% EXPOSURE)
which translates into the counter-cyclical
LARGE MODIFIED
approach of buying low and selling high. FUND NAME RISKOMETER EQUITY DEBT CAP MID CAP YTM (%) DURATION (YRS)
Anish Teli, Founder, QED Capital, ob-
serves, “Counter-cyclical BAFs work on HDFC Balanced Advantage VERY HIGH 69.7 22.5 77.1 15.1 6.1 1.4
the premise that markets eventually revert
ICICI Pru Balanced Advantage MODERATELY HIGH 42.5 27.8 89.4 10.2 6.2 1.29
to the mean.” Funds rely on metrics like
price to earnings (PE), price to book value
SBI Balanced Advantage MODERATELY HIGH 46.3 21.6 87.9 10.1 6.8 3.02
( PBV), earnings yield or a combination
of multiple such metrics to guide the as-
Kotak Balanced Advantage VERY HIGH 53.7 27.0 76.8 21.2 6.8 2.27
set allocation. Aditya Birla SL Balanced
Advantage Fund and PGIM India Balanced Edelweiss Balanced Advantage VERY HIGH 66.2 26.8 64.2 20.8 6.2 1.38
Advantage rely on the PE multiple to guide
asset mix while ICICI Prudential Balanced ABSL Balanced Advantage VERY HIGH 54.9 27.6 86.2 10.3 6.8 1.31
Advantage goes by the PBV. Some like L&T
Balanced Advantage and the new offering Nippon India Balanced Advantage VERY HIGH 53.8 26.2 80.4 14.7 6.8 2.49
Franklin India Balanced Advantage use a
combination of PE and PBV in their models. Tata Balanced Advantage VERY HIGH 50.3 30.0 86.3 11.8 6.6 1.65
Others follow a pro-cyclical or trend-
driven approach, which goes along with NJ Balanced Advantage VERY HIGH 60.7 17.2 62.5 34.5 5.6 0.3
market trend and not against it. They go
with higher equity allocation in a rising DSP Dynamic Asset Allocation MODERATELY HIGH 40.9 31.9 71.3 27.9 6.5 1.46
market and lower in a falling market. DSP
Baroda BNP Paribas Balanced
Dynamic Asset Allocation Fund, Kotak Advantage VERY HIGH 74.3 24.9 78.7 18.5 7.2 2.22
Balanced Advantage Fund and Nippon
India Balanced Advantage Fund deploy Above list includes funds with AUM of more than `3,000 crore | Data for 31 July 2022 | Source: Value Research
a mix of valuation and trend indicators.
Edelweiss Balanced Advantage runs a pure or are the erstwhile balanced funds that Returns depend on models, risks taken
trend-based model that uses a combina- also dabbled in derivatives. So, many BAFs
tion of momentum and volatility factors have a limited track record in their present The best performing funds may not exhibit low volatility.
as core indicators to identify market trend form, which hinders a meaningful analysis
and its sustainability. Till recently, HDFC of their performance. 5-YEAR AVG
STANDARD
Balanced Advantage roughly maintained a FUND AUM (`CR) ROLLING DEVIATION %
RETURN %
70% exposure to equities but now follows a Finding the right mix
more dynamic model in line with peers. Are the asset allocation models of these HDFC Balanced Advantage 46,130 12.7 3.9
BAFs also pursue varied strategies with- BAFs doing their job well? Not always, is
ICICI Prudential Balanced Advantage 41,742 11.9 2.6
in the equity and bond portfolios. Some in- the short answer. Santosh Joseph, Founder,
vest mostly in frontline stocks while others Germinate Investor Services, says “These Edelweiss Balanced Advantage 8,458 11.3 2.8
have sizeable presence in broader markets. models are not as nimble as perceived and
Within bonds, some funds take active du- can get caught on the wrong foot.” The limi- Aditya Birla Sun Life Balanced Advantage 6,861 11.3 2.3
ration calls (switching between long and tations of valuation-based triggers in coun-
Nippon India Balanced Advantage 6,417 11.6 3.2
short term bonds) or run high-yield credit ter-cyclical models are most evident during
strategies (bonds of low credit quality) sharp market swings. Ashutosh Bhargava, DSP Dynamic Asset Allocation 4,607 9.2 1.3
while others go for high grade bonds and Fund Manager and Head-Equity Research,
focus on accruals. Nippon India Mutual Fund, points out, “A IDFC Balanced Advantage 3,016 9.3 2.2
These variances in the investment purely valuation- based allocation model
L&T Balanced Advantage 1,911 10.4 3.7
strategies is reflected in the disparate risk will not come in handy when the market
profiles of BAFs (see table). Together with cut or rebound is very sharp and swift.” For Sundaram Balanced Advantage 1,607 9.2 3.1
the varied asset allocation models, these instance, during the crash of March 2020,
differences can lead to varied outcomes. many funds were caught on the wrong foot. Invesco India Dynamic Equity 654 11.4 3.5
Besides, this category was carved out only As stock prices tanked, index valuation
Bank of India Balanced Advantage 77 4.8 1.3
in 2018. Funds in this category have either multiples shrunk, prompting valuation-
been parachuted from a different category centric models to hike equity exposure to Data as on 22 Aug 2022 | Source: Primeinvestor.in
cover ssttoorryy
04 The Economic Times Wealth August 29-September 4, 2022
the upper limit. But as markets dipped fur- Top performers change across market phases
ther, the incremental equity exposure hurt
these funds. Different models work well in specif ic phases.
Funds that rely on market trends over
valuations are not infallible either. They FALLING MARKET SIDEWAYS MARKET
work best when the market trend is dis-
cernible. During the March 2020 sell-off,
Edelweiss BAF kept a modest 35% equity FUND RETURNS (%) 20 JAN 2020 FUND RETURNS (%) 18 OCT 2021
TO 23 MAR 2020 TO 17 JUN 2022
exposure even as other funds hiked alloca-
tion to stocks. This protected the fund from Sundaram Balanced Advantage -12.6 Bank of India Balanced Advantage 0.8
60% of the 38% slide in the Nifty. Later, as Bank of India Balanced Advantage -13.5 ICICI Pru Balanced Advantage -3.2
market momentum shifted positively, the
model hiked equity exposure and let the Shriram Balanced Advantage -14.3 HDFC Balanced Advantage -6.2
fund capture the upside.
Edelweiss Balanced Advantage -14.9 Tata Balanced Advantage -6.5
But this pro-cyclical or trend-based mod-
el has limited utility in a sideways market. Axis Balanced Advantage -15.4 Kotak Balanced Advantage -7.2
Between October 2021 and July 2022, the
market was listless. Edelweiss BAF cush- Category average -21.3 Category average -8.2
ioned 26% of the Nifty declines. However,
Nifty50 TRI -37.6 Nifty50 TRI -16.4
history suggests such non-trending market
conditions do not continue for long. Besides,
models should be judged on how they RISING MARKET RISING MARKET
perform over a market cycle, not specific
phases.
Not every AMC clearly spells out the in- RETURNS (%) 23 MAR 2020 RETURNS (%) 17 JUN 2022
FUND FUND
TO 18 OCT 2021 TO 18 AUG 2022
tricacies of its model, making it difficult to
get a clear grasp of a fund’s working. Often, HDFC Balanced Advantage 62.2 Motilal Oswal Dynamic 13.2
the model is proven to work wonders in
Baroda BNP Paribas Balanced Baroda BNP Paribas Balanced
back-tested data, but outcomes can greatly 47.2 13.0
Advantage Advantage
differ in real time. Teli avers, “It can be dif-
ficult to execute the model consistently at Aditya Birla SL Balanced Advantage 44.9 HDFC Balanced Advantage 12.8
larger size.” ICICI Pru Balanced Advantage 43.3 Bank of India Balanced Advantage 11.5
Don’t get caught up in hype Union Balanced Advantage 43.0 IDFC Balanced Advantage 11.4
Certain notions about BAFs must be dis-
Category average 37.4 Category average 10.1
pelled. They are not necessarily all-season
funds. A leading fund house proclaims that Nifty50 TRI 77.8 Nifty50 TRI 17.9
with BAFs, “investor wins irrespective
of what direction the market takes”. This Compiled by ETIG Database | Source: Accord Fintech
is not correct. While the debt portion in
such funds will limit the drawdown during set allocation of the entire portfolio? Also, BAFs can AUM (` cr)
market declines, the fund is not protected asset allocation is not a one-size-fits-all con- 654 2,367 6,417 6,861 46,130
be very
from losses altogether. Mohanty insists, cept. Individual risk profiles can vary, war-
“These funds aim to protect from full ex- ranting different asset mixes which can’t be volatile % instance of losses (over 6-month periods in past three years)
tent of loss and not fall in tandem with the fixed by one fund.
31.1
market.” Even as certain BAFs are adept at in short
cushioning losses, not all funds can do this What BAFs are ideal for 30.3
uniformly. Essentially, these are risk-mitigation prod- term 29.9
In the past, BAFs have been missold ucts geared to limit volatility and only suit
as a source of regular income through certain investors. Mohanty asserts, “BAFs It is not
SWPs. The SWP facility was pushed as a can be useful for conservative investors advisable 28.0
27.8
safe monthly income option. SWPs work who wish to step up the risk ladder. The to use these
best when drawing from a low volatility growth assets will prop up portfolio return, funds for
fund. BAFs may have low volatility when without taking undue risk.” At the same regular income
compared to pure equity schemes, but they time, investors with a high equity exposure withdrawals.
are not suited for regular withdrawals for may invest in BAFs to reduce the portfolio
income. On average, these funds delivered volatility. “These funds can help smoothen Invesco Axis Nippon Aditya HDFC
India Balanced India Birla SL Balanced
6-month losses 24% of the times over past the ride for equity investors,” says Bajpai.
Dynamic Advantage Balanced Balanced Advantage
three years. So, SWPs from a BAF runs the Investors who get jittery during high vola- Source: Equity Fund Advantage Advantage Fund
risk of redeeming at losses while the source tility may also find solace in these funds. Primeinvestor.in Fund Fund Fund
fund erodes in value. But savvier investors can avoid them
In contrast, only one ultra-short dura- because BAFs limit the extractable value and delivers a good return outcome without some comfort during bad phases,” says
tion fund and no liquid fund incurred from the market, argues Joseph. too much downside. That is good enough for Bajpai. At the same time, the fund should be
6-month losses. Finfix Research & The real utility of BAFs lies in how they many investors.” able to offer a healthy participation in the
AnalyticsFounder Prableen Bajpai insists, manage an investor’s emotions. When mar- market upside. Funds like DSP Dynamic
“BAFs are not necessarily low on volatility kets are volatile, investors often exit out of How to select the right BAF Asset Allocation, Edelweiss BAF, ICICI
during market extremes.” fear. They return when prices have already Select a fund based on returns will defeat Prudential BAF, IDFC BAF and Union BAF
Secondly, a BAF does not really solve run up, only to be disappointed when mar- the very purpose of investing in a BAF. have exhibited these qualities in the past.
your asset allocation problems. Anyone kets dip again. Others exit too early, miss- These funds are meant to reduce volatility Pick from funds whose allocation model
suggesting otherwise is misselling. ing the opportunity to create wealth. while ensuring a decent upside. They are has been time-tested. Since these largely
Mohanty admits, “The way these funds are By limiting the drawdowns, a BAF not geared for delivering high returns over take rules-based calls on asset allocation,
sold is a concern. For any fund to qualify as prevents an investor from making emo- the long term. So, the best fund may not be the track record can be an indicator of its fu-
an asset allocation solution, you must put tional mistakes. Staying invested is what the one with highest returns. If returns are ture behaviour. And, as always, avoid new
entire money in that scheme so that this ultimately facilitates meaningful wealth a priority, go for pure equity funds. untested funds or NFOs.
fund itself covers your entire asset alloca- creation. Radhika Gupta, CEO, Edelweiss The emphasis must be on the downside
tion.” Even if not investing in any other AMC, remarks, “Is BAF perfect? No, it is protection. “Choose a fund on the basis of
mutual fund, individuals may have other not chocolate cake, and it doesn’t make eve- its performance during a downturn. A fund Please send your feedback to
[email protected]
investments. How can one fund drive the as- ryone happy. But it is a decent dal chawal falling lesser than market is apt for giving

guest ccoolluummnn
06 The Economic Times Wealth August 29-September 4, 2022
Spiritual outlook helps
during rough patches
Like in many other aspects of life, having spiritual self-awareness
makes you a better investor, says Dhirendra Kumar.
E
very Sunday evening, I do a half
hour Q&A show on All India
Radio where listeners call in with
DHIRENDRA KUMAR
their investing queries and I an-
CEO, VALUE RESEARCH
swer on live radio. This has been
money going on for more than a decade and I quite
enjoy a format that is so different from writ-
mysteries
ing articles and even being on TV. Over the
years, through hundreds of shows and thou-
sands of callers, I have become quite used
to the kind of questions that come because
after all, there are only so many things that
investors can ask about investments. The
specific funds and circumstances change,
When I look at the but the themes remain the same.
kind of investment However, last Sunday I was genuinely
questions that surprised by a question, which was of the
type I’d jokingly call an ‘out of syllabus’ one.
people ask, there’s an
A reader from Kolkata asked if spirituality
interesting pattern
helped in investing! Now, I can hardly pre-
that can be observed.
tend to be an expert on the matter. As a mat-
There are savers who ter of fact, there are very few people who are.
think that investing After protesting my lack of expertise, I did
is about investments point out something that occurred to me at
and there are those that moment based on personal experience
and that of a few people who are close to me.
that think investing is
Having what might be called a spiritually-
about themselves.
balanced outlook towards life definitely
helps one deal with those times when your
investments are not doing well.
Thinking of investing
decisions as external prob-
lems vs problems whose
S
E
solutions lie within oneself AG
M
is a big differentiator. TYI
T
E
G
There’s nothing unexpected in this. tiator. When I look at the kind of investment vestment in general. The first questioner
People who are spiritually grounded and are questions that people ask—on the internet thinks investing decisions are to be
thus self-aware can face any kind of tough generally, there’s an interesting pattern based on what’s happening in the outside
circumstances with greater equanimity. that can be observed. There are savers who world while the second one sees saving
As it happens, over the last two years many think that investing is about investments and investing as a way to find solutions to
people faced a huge amount of personal and there are those that think investing is the problems of one’s own life.
stress and sorrow because of covid. This has about themselves. There’s another, even deeper, more
made some of them psychologically tougher, I’ll give a pair of contrasting examples to spiritual aspect that requires you to
while it has had the opposite effect on some. demonstrate what I’m talking about. Here’s know yourself. Different people seem
The difference could well be because of how one real question: ‘Is it advisable to invest in programmed to suffer different levels of
spiritually aware they are. My sense is that mid-cap and small-cap mutual funds in the stress and anxiety when they are faced
investors are the same. Every investor goes current situation in the stock market? How with hardship. Investment advisers are
through bad times sometime or the other. long will the conditions remain like this?’ fond of asking their clients their ‘risk
When those times are over, some get scared It sounds like a perfectly reasonable thing tolerance’, but the answers are useless
into quitting and/or become panic-prone. to ask. However, contrast it with this ques- unless someone has had a real life experi-
Others learn their lessons, both about the tion: ‘I am 40 years old but haven’t started ence of facing losses. This is equivalent to
external circumstances and about their own saving for retirement, apart from the EPF many other life situations. Are you going
attitudes and actions. deduction. When I retire, I will need `75,000 to be brave when faced with a terror at-
Even if you are the sort of person who a month....’, and then there are personal de- tack? If you get a terrible disease? No one
actually would not self-classify as spiritual, tails that I’ll omit here. knows the true answer till it happens.
self-awareness leans in that direction. In Do you see what I’m talking about? While
fact, thinking of investing decisions as these are just questions that the two savers
external problems versus problems whose asked in an email, I think it would reflect Please send your feedback to
[email protected]
solutions lie within oneself is a big differen- their attitude towards thinking about in-
insurance
The Economic Times Wealth August 29-September 4, 2022 07
3 in 5 buyers see over 25 rise in
%
health insurance costs
Sharper fall in % of people
who saw 10-25% rise
The increase is higher than that of last
10-25% PREMIUM RISE UP TO 10% PREMIUM RISE
year, as per a LocalCircles survey.
August 2021 August 2021 August 2022
28% 10% 9%
38
saw a premium 11%
%
rise of over 50% August 2022
How much has your health
% of people
insurance premium increased
who reported
in the past 12 months?
no change in
2% Can’t say premium fell
Has reduced in 2022
6
%
Same as PREMIUM IS SAME
10
last year % AS LAST YEAR
62% saw premiums rise by over
Not aware 38
%
9% (premium 25%. In 2021, only 34% did.
paid by 16%
0-10% employer) 50% OR MORE 25-50% 10%
11 – Nil
%
15% 38% 19% 24%
10-25% 24% August 2021 August 2022
Source: LocalCircles. The survey received
By 50%
20,000 responses from 287 districts in
25-50% or more August 2021 August 2022 August 2021 August 2022
August 2021 and August 2022.
stocks
08 The Economic Times Wealth August 29-September 4, 2022
Cost inflation has hurt
performance of India Inc
Rising consumer spending and economic recovery
supported corporate earnings in the first quarter.
However, rising cost inflation continues to erode
operating profit margins for most companies.
by Sameer Bhardwaj
I
ndia Inc. reported good numbers
in the first quarter of 2022-23
supported by price hikes, pent-
up demand, operating leverage
ES benefits and the low base effect.
G
A The good performance helped the valu-
M
YI ations of the Nifty-50 index, which is
T
ET now trading at a 12-month forward PE
G
of 19.2 times, compared to its last one-
year average of 20 times. profits, which was higher than consen- Commodity prices have corrected
The Nifty-50 universe reported sus estimates of analysts compiled by
a 35% and 23% increase in revenue Bloomberg. Twenty three companies sharply from peaks Bloomb-
Price change in f irst quarter (%)*
and PAT growth y-o-y, according to a reported adjusted net profits below esti- erg com-
Motilal Oswal report. Financial sector mates in the first quarter. modity
stocks made significant contribution However, most heavyweights in the Tin Nickel Zinc Iron Ore Lead Brent Crude copper Aluminium index
to the net profit growth. Ex-financials, Nifty-50 missed Bloomberg consensus
the Nifty-50 universe reported a 18% estimates. These include RIL, BPCL, TCS,
y-o-y jump in net profit. Bharti Airtel, ONGC, HDFC and Tata
Cost pressures continued in the first Motors. The below estimates numbers of -5.5%
quarter, denting operating profit mar- such notable stocks dragged the Nifty-50
gins. Though commodity prices have earnings estimates. In the last three
significantly corrected from their months (one quarter), analysts compiled
peaks, the correction happened in the by Bloomberg have reduced their 2022-23
-15.5%
latter half of the first quarter. Over Nifty-50 EPS estimates by 2.9%.
61% of the Nifty-50 (excluding finan- Despite the lower than expected perfor-
-20.6% -20.2%
cials) stocks witnessed a y-o-y contrac- mance of famous large-cap stocks, ana- -22.1%
tion in EBITDA margins. Materials lysts remain confident about the future
*between 1 April 2022 and 30 June 2022.
(metals and cement), utilities, IT, oil growth prospects of India Inc. According -27.2% -26.0% Source: Bloomberg. Price change based on
and gas and pharmaceuticals were to a recent Prabhudas Lilladher report, a international $ prices.
among the sectors that witnessed high- strong demand is expected in the second -31.7%
est y-o-y contraction in EBITDA mar- quarter, given early Diwali and sustained income due to rising margins, a higher
gins in the first quarter. pent up demand from the urban middle mix of floating rate loans, increased fee
The prices of inputs like tin, zinc, class in discretionary segments. Also, the income, collection efficiency and modera-
steel, oil & gas, iron ore and copper third quarter will benefit from improve- -40.9% tion in slippages further supported the sec-
have fallen significantly in the first ment in margins given that cost pressures tor growth. Also, healthy recoveries led to
quarter. The Bloomberg Commodity are abating as most agri commodities quarter of 2022-23. a sequential decline in gross and net NPAs
Index that covers the prices of oil, have corrected and crude has softened However, analysts have flagged rising with stable PCR (provisioning coverage
natural gas, copper, zinc, and other from recent highs. interest rates, deficient rural demand and ratio).
commodities fell 5.5% between 1 April Another report from Antique Stock volatility in commodity prices as the key The private sector banks benefitted
and 30 June. The Motilal Oswal report Broking says domestic demand is likely to risks for the growth of India Inc. in the from the growth in advances whereas
says the benefits of such a decline in remain strong, supported by the normal future. Here’s how different sectors of the the revival in corporate loans supported
commodity prices will be visible in the monsoon, pent-up demand for contact- Nifty-50 have fared in the first quarter: the performance of public sector banks.
second half of 2022-23 and will help sec- intensive services, strong festive demand However, rising bond yields hit the sector’s
Banking
tors like consumer, autos and cement and a pick-up in investment demand. Also, PPOP (pre-provisioning operating profit)
to contribute to the overall growth. RBI’s industrial outlook survey suggests The sector reported strong growth in the due to increased treasury losses. Among
Twenty seven companies (54%) sequential expansion in production vol- first quarter due to traction in loan growth six banking stocks in the Nifty-50 uni-
in the Nifty-50 universe reported ad- ume and new orders in the second quarter, in the retail and corporate segments. In verse, Axis Bank and IndusInd Bank re-
justed—for extraordinary items— net which is likely to sustain till the fourth addition, improvement in net interest ported the highest y-o-y jump in net profit
stocks
The Economic Times Wealth August 29-September 4, 2022 09
Coal India clocked highest JSW Steel saw steepest earnings other FMCG stocks of the Nifty-50 index,
Tata Consumer Products and ITC report-
earnings upgrade in past quarter downgrade in past one quarter ed the highest y-o-y jump in the net profits
growth of 45% and 38% respectively.
46.7% JSW Steel Tata Motors Shree Cement BPCL Tata Steel Going ahead, the sector is expected to
witness a slow and gradual recovery in
demand over the next few quarters. The
management guidance for most compa-
nies expects cost pressures to impact gross
margins in the second quarter of 2022-23,
but also expects the same to stabilise.
20.2%
17.9% Information technology
-20.4%
The sector witnessed growth moderation
7.4% 6.5% -25.9% -24.9% due to a higher base. Also, the deal wins
-29.0% contracted on both y-o-y and q-o-q basis
due to reduced spending in some verticals
like mortgage and retail. In addition, the
Coal India Mahindra & Bajaj Finserv ICICI Bank Grasim increased costs like higher than expected
Mahindra Industries Nifty-50 stocks. Source: Bloomberg. wage hikes, retention costs, high subcon-
-42.0%
tracting costs and travel costs impacted
the profitability of large IT companies.
growth of 91% and 61% respectively. Some Nifty-50 sectors saw high All five IT stocks—Infosys, TCS,
Going forward, the sector growth will Tech Mahindra, Wipro and HCL
be supported by improving margin trajec- contraction in EBITDA margins Technologies—in the Nifty-50 index
tory aided by rate hikes and rising demand reported a sequential or q-o-q decline in
44.5%
for credit. Also, the asset quality is expect- adjusted net profit growth between 4-25%.
Q1 2021-22
ed to remain stable due to rising PCR and In terms of y-o-y growth, TCS, Infosys and
moderating credit costs. 37.1% Q1 2022-23 HCL Technologies reported single-digit
PAT growth whereas the other two compa-
NBFCs and insurance
nies witnessed a double-digit y-o-y decline
Strong disbursements, collection efficien- in profits.
cies and robust AUM growth supported the 26.2% 25.6% 25.2% 24.8% The management commentaries in-
performance of the NBFC segment. Going 22.1% dicate strong demand momentum as the
forward, the sector NIM may come under overall deal pipeline remains strong.
18.2%
pressure due to rising interest rates. Bajaj Cloud migration, 5G, digital transforma-
15.1%
Finance reported the highest—159%—y-o- tion and IoT will continue to drive the sec-
y growth in PAT among the Nifty-50 NBFC 11.8% tor’s growth in the future.
stocks supported by its investment in tech-
Materials
nology and strong digital ecosystem.
The insurance sector witnessed strong Steel companies witnessed substantial
VNB (value of new business) margins and reduction in EBITDA margins due to fall
healthy Ulip growth. Better product mix in steel prices, procurement of coking coal
and share of high-margin products are Materials (metals Utilities IT Oil, Gas & Pharmaceuticals at higher prices and reduction of exports
and cement) Consumable Fuels
expected to support sector performance after the imposition of export duty in May
going forward. HDFC Life and SBI Life Source: Bloomberg. Nifty-50 sectors. Sector classif ication as per Bloomberg. 2022. Rising inventory due to postpone-
reported 21% and 18% y-o-y growth in net ment of steel consumption by consumers
profits. cost pressures. Looking at segment-wise net profits and despite record performance in anticipation of further fall in prices led
performance, the domestic business wit- of its O2C segment, the company missed to volume de-growth. The steel players
Automobiles
nessed good growth driven by price hikes estimates due to the muted performance of in the Nifty-50 universe—Tata Steel and
Sustained demand momentum in com- and volume growth in chronic therapies. its petrochemicals segment. JSW Steel—reported a 14% and 86% y-o-y
mercial vehicles, passenger vehicles and On the other hand, the API segment con- ONGC and Coal India reported the high- decline in net profit growth in the first
recovery in two-wheelers and tractors sup- tinued to see challenges due to sustained est y-o-y jump in net profits growth of 251% quarter of 2022-23.
ported the performance of the automobiles de-stocking and price drop of several and 178% respectively in the sector con- Analysts believe that the sector may not
segment. Revenue growth was fuelled by molecules. stituents of the Nifty-50 universe. witness an improvement in EBITDA in the
price hikes, increased share of value-add- Out of five healthcare stocks in the Going forward, the downstream compa- second quarter as the impact of a fall in
ed products and easing supply constraints Nifty-50 universe, only Dr. Reddy’s nies will benefit from higher throughput prices will outweigh the meager benefits
of semi-conductors. However, commodity Laboratories witnessed a jump in operat- and better GRMs whereas policy clarity on of a fall in coking coal costs.
price inflation kept costs elevated. ing profit. Its EBITDA grew 15% y-o-y. All ad-hoc tax will determine the future per- On the other hand, the non-ferrous play-
Out of six automobile stocks in the others—Divi’s Laboratories, Cipla, Sun formance of upstream companies. er— Hindalco—reported good numbers
Nifty-50 universe, five reported net profits Pharma and Apollo Hospitals—reported a helped by lower costs in aluminium opera-
Consumer
while Tata Motors reported a net loss of decline in EBITDA growth. tions, strong realisations in the copper
`6,500 crore. Eicher Motors and Maruti Going forward, the sector will see the The performance of the sector was driven business and good performance of Novelis.
Suzuki reported the highest y-o-y net prof- benefits of NELM product price hikes by price hikes, increased discretion- The cement companies witnessed an
it growth of 158% and 130% respectively. from the second quarter of 2022-23. US ary spending and improved mobility. improvement in y-o-y sales growth due to
Going forward, new launches, rising generics will benefit from new product However, the commodity costs remain vol- the low base effect, however, cost inflation
EV penetration and improving economic launches whereas the domestic segment atile despite showing signs of stabilisation continues to impact the margins and prof-
activities are expected to support the will benefit from a likely jump in chronic towards the end of the first quarter. The itability. In the Nifty-50 universe, barring
demand for both two-wheelers and four- therapy volumes. impact of high inflation is felt on regional Grasim Industries, the other two stocks –
wheelers. Also, improving chip supplies or unbranded players that struggled to Ultratech Cement and Shree Cement—re-
Oil, gas & consumable fuels
and a decline in commodity prices are maintain their market share. ported a y-o-y contraction in both EBITDA
expected to drive the sector’s performance The sector reported a mixed performance. The consumer discretionary sector and PAT. Grasim Industries reported 78%
from the second quarter of 2022-23. While the upstream companies benefitted company Titan reported a manifold jump and 81% y-o-y growth in EBITDA and PAT
from higher realisations due to increased in net profits to `790 crore in the first supported by VSF and chemical segments.
Healthcare
energy prices, downstream companies quarter compared to `18 crore in the corre-
The performance of the healthcare sector suffered heavy marketing and forex losses sponding period of the previous year. The
was impacted due to a higher base, price that offset strong refining gains. Reliance growth was supported by strong demand Please send your feedback to
[email protected]
erosion in US generics and raw material Industries reported a 46% y-o-y jump in for jewellery, watches and eyewear. Among
guest ccoolluummnn
10 The Economic Times Wealth August 29-September 4, 2022
S
E
G
A
M
YI
T
T
E
G
Why it’s time for you to
focus on value investing
With central banks hiking rates, there will be repricing of risk and return of value consciousness.
by Sankaran Naren But central banks led by the US Fed fair value. Therefore, investors today years. These set of investors may be
are now in the process of taking big need to brace for sharp two-way moves accustomed to the narrative that India
W
e have always believed interest rates hikes to quell spiralling in their equity portfolios that may last is a growth market, where quality of
that value as a style inflation. This I believe, will contribute until the pendulum reaches some equi- the business is far more important
works very well in the to a global re-pricing of risk and a re- librium. Such phases are ideal for the than the price you pay for it. The truth
long run. A style which turn of value-consciousness among eq- value style of investing. is that, whether one practices value
works well over the long uity investors. This structural shift in One of the fundamental tenets of investing in its pure form as Benjamin
term is also suited for systematic in- macros has already helped value style value investing is to ensure that the Graham or Warren Buffett does, for
vesting through systematic investment funds thus far in a decisive turnaround. stocks one considers for investing great long-term results from equity
plans (SIP). It is also the style which has In India, value-style funds have been de- must offer reasonable visibility on investing, you need to buy good busi-
been followed by all investing greats livering an encouraging performance cash flows, profits and offer adequate nesses at a fair price.
from Benjamin Graham to Howard for a couple of years now. margin of safety on the entry price. Investors must be aware that one
Marks. However, over the past decade, The second reason why value invest- Therefore, when markets correct from cannot succeed just by buying cheap
true-blue value investors have had a ing could make a strong comeback is over-heating, value stocks tend to be and hence the thinking that value in-
tough time in the market. because of mean reversion. Markets less vulnerable to sharp de-rating vesting is asking to junk investing is
The essence of value investing is to always behave like a pendulum, either and contain downside better. History incorrect. The true hallmark of a suc-
devote as much attention to the price pricing assets far beyond their fair shows that value funds deliver robust cessful value investor is willing to ex-
you are paying for a business, as you do value or at a deep discount depending performances in corrective market perience short-term pain, stay focused
to researching and understanding its on whether greed or fear, optimism or phases and in the subsequent rebound on intrinsic value and be invested with
growth and profit potential. But when pessimism, is the dominant emotion which usually sees considerable sector a long-term view. History and global
central bank policies around the world at any given point in time. In the last 10 rotation in the market. Such change value experience is witness to the suc-
are focused on keeping the financial years, the pendulum on bond and stock in market preferences is evident in the cess and the potential value investing
system flush with money at near-zero valuations had swung too far on the op- outperformance of cyclical, commodity holds for long term wealth creation.
cost, one cannot expect markets to be timistic side. It is now in the process of and economy-driven sectors and stocks
price or value-conscious. This is why correcting. But pendulums, when they in India in the past year.
growth and quality styles of investing, correct after a long spell of excesses, This structural change in the mac-
which look to identify high-growth seldom stop at the mid-way point. This ros calls for a change in the mindset AUTHOR IS EXECUTIVE
businesses while down-playing the is true of the stock markets too, which of retail investors, especially those DIRECTOR & CIO,
price aspect, trounced value investing correcting from peak valuations can de- who have entered Indian equities or ICICI PRUDENTIAL
MUTUAL FUND
for much of the period from 2010 to 2020. cline way below long-term averages and equity mutual funds in the last few