Positive , no return or negative returns on equity?

A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC, says “this year investors should not just keep thinking that equity as an asset class will continue to give a huge amount of return; it will go through volatility and some of the volatility could come because my own experience has been that volatility of course comes in and when the reversal happens, it does not tell you when it comes. It just comes for some unknown reasons for which we do not know what those unknown reasons are.”

What is the pledge for this year? How many hours will you be working?

I continue to do the same. There is absolutely no replacement for the hard work that you have to do and each year is a new year and each year you have to do something different, in order to ensure that you continue to drive the goal that you have, which is basically building the business, building people and building the whole ecosystem. Whatever hard work one has to do, I think, in my view, has to be done. There is absolutely no replacement, no substitute for the hard work which anybody has to do.

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What do investors need to do differently for Samvat 2080?

Investors continue to keep focus on the long term. Given that the country as a whole will be marching towards $5 trillion economy and even beyond, India will continue to remain one of the fastest growing economies in the world and the world will look at India for the next 10 years as one of their most investment destinations – whether it is private equity or public equity or in any other means of participating in the infrastructure building and so on and so forth.

World attention is going to be more on India to make it part of their global strategy and there is absolutely no reason why Indian investors should look at short-term volatility on which they base their investment decisions. Clearly the longer term seems to be pretty good. But this year, given that the last few months have been pretty good from the market point of view, there has been wider participation than we have seen. The breadth and the width in the market have been rising. Individual participants have been rising.

Mutual funds have been getting a lot of money and in general, various sectors which are supposed to be the drivers of the economy, I generally call it the engineering and science phase. A lot of Indian companies have got a huge capability that in my view is now getting unleashed.

In the automobile sector, there are many auto parts companies in the country. All of them are now coming in demand more from the point of view of the products becoming more relevant and their viability is also increasing. I would assume the overall bullishness will stay. But having seen a significant rise in the market and also seen the interest rates being where they are today, definitely asset allocation will play a role.

That is why this year from investors’ point of view, do not just keep thinking that equity in asset class will continue to give a huge amount of return; it will go through volatility and some of the volatility could come because my own experience has been that volatility of course comes in and when the reversal happens, it does not tell you when it comes. It just comes for some unknown reasons for which we do not know what are those unknown reasons.

Do you expect this year to be a year of positive return for equities or could be a year of no return, low return or negative returns?

This year, we should probably see more of a flat kind of return, more than the negative return and probably one should also not be surprised if there is a marginal negative return given the fact that the market has still not seen any kind of corrections anywhere in the market. Therefore, one should not be surprised. My own belief is one should never measure the success of the equity market on a one-year basis. I think we have to extend this argument beyond a three-five year period.

We are talking about how the next decade is going to be the techade and we have seen this digitisation theme really play out. Is it going to be the traditional IT players or a lot of these companies adopting AI, new-age tech, who will be the leaders?

From the technology sector point of view, I would divide them into pure service providers versus the product and solution providers. Definitely companies which are in the space of solution providing, whether using artificial intelligence (AI) or machine learning (ML) or ChatGPT or even engineering space, have been developing products especially towards the automobile sector. There are many companies that are emerging. They may be called automobile companies. They may be technology companies within the auto space. Therefore, there are specialised companies within the sectors focussing on technology because technology is becoming the key for success everywhere and therefore that differentiation has to be done.

At the same time, if the interest rates drop next year in the US, then there is a correlation of interest rates coming down. There is a direct correlation to the IT sector spending. If that actually comes back, once again in the global market, given the fact that spending by most of the companies towards building technology capability including meeting various regulatory requirements, they will continue to remain.

Therefore, we will have to just see. Initially, the more product driven and solution driven companies could drive the market and as time progresses, the companies on the service side also should benefit, given that valuations are cheap. Second, in the last three years, they have given mediocre returns and balance sheets are strong and the buybacks can be used and deep cash that they have in the books could be used for creating value for the shareholders. These are some of the moving parts also we have to keep in mind while taking a very strong view on the sector.

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Harry Byrne

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