What is your view on the market situation with the indices touching new highs?
The stock market is not cheap by any standard. While it is costly, one has to understand that there has not been much growth in corporate income for the last 5-6 years. Earnings growth remained flat for some time. But in the last 6-9 months we have seen that earnings have started increasing. So even if the market is touching new highs, each quarterly earnings are also increasing. This is a good sign.
If earnings don’t rise but the market keeps growing, we’ll be in a bubble zone. After a very long time, most of the promoters are expanding. Everyone is adding to existing capabilities. This gives a lot of confidence in the market. Ultimately, stock prices tend to chase earnings. Interest rates have also declined. The cost of borrowing has fallen for many capital intensive companies. Furthermore, companies are gearing up for the worst in the pandemic. He cut costs and made himself lean. It has fed the bottom line.
What is your advice to customers now?
Our clients are well developed enough to understand the ups and downs of the market. Most have been investing for a very long time. They understand that short-term fixes are inevitable. The amount of time we spend with clients is on asset allocation. It’s not just at the beginning of the relationship; We keep revisiting this topic every 6-12 months. if your asset allocation retained, clients are not bothered by short-term volatility. They are looking to invest for a long time. Asset allocation is important and ensures that you stay invested throughout, while also preventing your portfolio from becoming one-sided. If clients stick to asset allocation, it helps to deliver healthy results.
This rally in the market has seen investors invest directly in equities for the first time. Do you think the expectations are correct?
During the pandemic, we have seen many entering the market for the first time. Many 15-16 year olds have opened trading accounts for the first time. Naturally, the expectations of some newcomers are unrealistic. There are very few occasions when the market has given such returns in a short period of time. Many of these investors were not in the market in March. So they haven’t seen a sharp decline. Let’s hope they understand the risks that lie ahead. Investors should keep commensurate expectations of long-term returns from the equity markets.
How’s the IPO appetite right now? What is your assessment of the profile of the upcoming IPO?
A lot of promoters who want to get listed are afraid of whether they will get a good membership. But when the market is buzzing, almost everything blows up. Liquidity is abundant. That’s why promoters of both new tech startups and older brick-and-mortar companies have higher confidence levels. So IPOs are here to stay for now. It is another matter if these IPOs are leaving enough money for investors.
How many customers continue to lean towards proactive strategies? Are passive or causal strategies gaining more space in any way?
Each portfolio is unique to a client or family. So they will look different from each other. There are some who are very aggressive, leaning towards proactive PMS and AIF strategies. Some even show interest in the pre-IPO theme. There are also some who prefer passive strategies. It depends on the risk taking ability of the customer. Usually clients prefer a mix of strategies. There are also some who take a tough stand in favor of any strategy.
Has the pandemic further accelerated wealth creation at the top of the pyramid?
The IIFL Wealth Hurun India Rich List has grown 10 times in the last 10 years, with individuals on this list adding Rs 2,000 crore per day. In the IIFL Wealth Hurun India Rich List 2021 today we have 1,007 individuals, an increase of 179 from last year, with assets of more than Rs 1,000 crore. There are now 237 billionaires in India, which is 58 more than last year. Cumulative assets have increased by 51% this year, while average assets have increased by 25%. When the list came out, we were at the peak of the market. Listed companies have seen a rise in share prices. From here the list of the rich has become even richer.
Are New Age Startups Adding First Generation Entrepreneurs to the Rich List?
Several new trends have emerged in this year’s rich list. 10 years ago the youngest in the rich list was 37 years old and today 23 years old, which shows the impact of the startup revolution. Over the next few years, we will see many of these first generation entrepreneurs make the list.
From the Indian point of view, rules are very helpful. Innovation has gone through the roof. Easy access to funding is helping many new-age entrepreneurs build wealth not only for themselves but also for the many senior members of their teams. Freshworks is a recent example of a startup listing multiple millionaires. Brick-and-mortar companies are also getting bullied by tech startups.
How many success stories come out of small towns and cities?
Growth in small towns has been explosive. These are not tech startups but other entrepreneurs coming from these places.
Many small towns have seen growth in specific areas and are doing very well. This has led to the creation of more wealthy households in Tier 2 and Tier 3 cities. This is evident from the sharp jump in MF industry AUM coming from these cities. For us as well, a large part of our advisory business now comes from these places. Over the past decade, the number of Indian cities represented on the rich list has increased from 10 to 76.