Tech businesses able to meet market expectations on returns: Oswal

Volatility usually spikes when markets correct, but with earnings catching up to valuations, there seems to be less risk in the markets than 5-6 months ago. There does seem to be a euphoria on IPOs and technology-based businesses - which is somewhat similar to the late 90s - there is a lot of expectation riding out on tech businesses. Pratik Oswal, Head (Passive Funds), Motilal Oswal Asset Management Company (AMC), in an exclusive interview with Bizz Buzz says, "with high valuations in this space - long-term investors should manage their expectations accordingly in terms of future returns."

While investing in international market, the US markets, which constitute 60% of world equity, should be considered first as it has a lot of global companies. After covering the US, investors can look at other developed markets followed by emerging markets like China, South Korea, Taiwan and others. In terms of international investing - invest should first look at simple broad based equity funds - before exploring themes and sectors - as they are risky and need an element of market timing. For investors who are looking for simplicity - US markets are good enough for international allocation

Minimum 10 per cent and anything between 15-20 per cent is a good allocation towards global equities. Anything less than five per cent is not worth it taking on a new asset class. investors should stick to Indian equities in that case. It's important that investors see international investing as a way to diversify their portfolio and for diversification to play out - it needs to be a significant part of the portfolio. What all studies show is that Indian and International markets move in different ways - so a period where Indian markets don't perform - international offer protection and vice versa. A good allocation ensures lower portfolio volatility and also offers currency protection as the rupee falls by 2-4 per cent on average every year against the dollar

Passive funds across the board are doing well. International and debt passive funds are new categories which only started seeing traction two years ago and since them have taken off in a big way. When it comes with the thousands of options for global investing - passive funds make it easy, cheap and also excellent in terms of returns too. Plain vanilla passives - like nifty 50 and Midcap 150 are getting steady flows - however adoption of passives is still very small - compared to stocks and other mutual funds. There is a lot of talk on passives based on factors like momentum, volatility, quality but its early days for them

How do you see the market which is volatile at present? How long will the volatility in the market continue?

Hard to say - everyone including me have been positively surprised by the one-way market over the last 18 months. Volatility usually spikes when markets correct - but with earnings catching up to valuations - there seems to be less risk in the markets than 5-6 months ago. There does seem to be a euphoria on IPOs and technology-based businesses - which is somewhat similar to the late 90s - there is a lot of expectation riding out on tech businesses and I hope they are able to deliver on the expectations. With high valuations in this space - long-term investors should manage their expectations accordingly in terms of future returns.

Which kinds of passive funds are doing well?

Passive funds across the board are doing well. International and debt passive funds are new categories which only started seeing traction two years ago and since them have taken off in a big way. When it comes with the thousands of options for global investing - passive funds make it easy, cheap and also excellent in terms of returns too. Plain vanilla passives - like Nifty-50 and Midcap-150 are getting steady flows – however, adoption of passives is still very small - compared to stocks and other mutual funds (MFs). There is a lot of talk on passives based on factors like momentum, volatility, quality but its early days for them.

How do you see the passive funds' performance going forward?

Passive funds will be competitive going forward in terms of performance versus other mutual funds and asset classes. There remains a lot of innovation behind passives. There will be international, factor, thematic, commodities, debt, real estate - all types of passive funds in India over the next few years.

What is the best passive fund these days?

It really depends on the investor's risk profile and goals. With 100s of passive funds across multiple categories - this is a hard question.

What proportion of one's portfolio should be allocated to international investing?

Minimum 10 per cent and anything between 15-20 per cent is a good allocation towards global equities. Anything less than 5 per cent is not worth it taking on a new asset class. Investors should stick to Indian equities in that case. It's important that investors see international investing as a way to diversify their portfolio and for diversification to play out - it needs to be a significant part of the portfolio. What all studies show is that Indian and International markets move in different ways - so a period where Indian markets don't perform - international offer protection and vice versa. A good allocation ensures lower portfolio volatility and also offers currency protection as the rupee falls by 2-4 per cent on average every year against the dollar.

While investing internationally, which markets can be considered and why?

US markets should be considered first - since the US is close to 60 per cent of world equity - and the US has a lot of global companies. After covering the US - investors can look at other developed markets followed by emerging markets like China, South Korea, Taiwan and others. In terms of international investing - invest should first look at simple broad based equity funds - before exploring themes and sectors - as they are risky and need an element of market timing. For investors who are looking for simplicity - US markets are good enough for international allocation.

Sebi has made it mandatory for all AMCs to categorize debt schemes on potential risk and publish Risk Class Matrix based on Interest Rate Risk and Credit Risk. Please share your view?

I think it's a good move overall. We have learned that debt funds can at times be more risky than equity funds. In equity - past performance is usually a factor of good stock selection. For debt funds - it could be that the fund manager is good, or might be taking too much risk. According to me - there should also be simplification in debt categories. There are a lot of them and most are pretty similar to each other.