sip outlook: SIPs and SWPs combo to lead to the next big phase of investment: Prateek Pant, WhiteOak Capital AMC

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Prateek Pant, Chief Business Officer, WhiteOak Capital AMC, says just for the lack of any negative surprises and for the fact that India continues to be an outlier in the global otherwise uncertain macroeconomics, we seem to be getting a lot more share of FII flows which are coming in right now. The true flows will be still linked to what happens from a Fed policy perspective although there has been indications that we may be very close to the peak of the interest rate cycle out there, that can start now building in some level of appetite for emerging markets and for India.

Pant further says that “whether it is consumption, capital growth or health of the financial sector, we are a fairly uniquely poised emerging market. That is where many investors globally are seeing this play out not just as a one year-two year phenomena but more as a decadal opportunity.”

First of all, I would like to understand what is your house view on the Indian market? Almost 75% of the index weight earnings are out. You guys operate at a global level as well. So keep a keen eye on flows. How are these three variables looking for India?
It is a good day to be talking right now where markets are showing elevated levels. At some point of time, the actual earnings in the market starts catching up. So broadly, the economy had been holding up and now that has started getting reflected in the earnings data which is coming up and also simultaneously started reflecting in the prices. The results which have come out so far, have been in line with expectations. We are expecting roughly about a 12% growth in EPS for Nifty for this financial year, which is fairly healthy.

Across most of the sectors, we have seen fairly strong pickup. I guess just for the lack of any negative surprises and for the fact that India continues to be an outlier in the global otherwise uncertain macroeconomics, we seem to be getting a lot more share of flows which are coming in right now. The true flows will be still linked to what happens from a Fed policy perspective although there has been indications that we may be very close to the peak of the interest rate cycle out there and you know that can start now building in some level of appetite for emerging markets and for India.

We still have a little bit of catching up to do. Broadly India and the larger emerging market pack actually was underperforming the developed markets. The last one week of course rallies making this now more in line in terms of both emerging markets as well as the developed markets. So flows continue to be good in India.

But the actual if you say tsunami will come as people get a lot more directionally comfortable with what the Fed is actually going to do out there. Having said that, we continue to see strong outlook even in this particular year across sectors whether it is consumer, whether it is industrials with revival of some amount of capex, and of course, banking and financial services which is pretty much leading the pack right now.

In association with Ashoka, you have launched Ashoka White Oak Emerging Market Trust in the London Stock Exchange. What kind of communication or talks are you having with your overseas investors regarding India? What is the hypothesis due to which they are participating for a three to five year view?
Ashoka India is a part of the White Oak structure itself, which we launched last week on the main bourse of London Stock Exchange and that has given us an opportunity to reach out to a lot of global investors who have been looking at India.

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As I reiterate, today India seems to be very strongly poised in terms of all three aspects; the large consumer diaspora which is leading to growth in the consumer side, some level of revival which is there on the capex side and that is giving the order books across industrials are very strong. Finally, the clean-up which happened in the banking and financial sector is now finding its manifestation in the type of earnings which is coming out from the private banking sector.

So across these areas – whether it is consumption, capital growth or health of the financial sector – we are a fairly uniquely poised emerging market. That is where many investors globally are seeing this play out not just as a one year-two year phenomena but more as a decadal opportunity. Those are very positive observations which are actually coming for the capital markets and the growth of the markets out here in India.How does the trajectory look if one were to take a fresh call, if an overseas investor wants to take a 3-5-year kind of a view? At WhiteOak, you have a hybrid kind of portfolio, a mix of small, mid and large. Are you getting comfortable feeling about the earnings trajectory because eventually returns will mirror the earnings of corporate India, a 3-5-year view?
Normally while I may talk to you about broad sectors and market and economy, the way we construct our portfolio is all bottom up. We believe that the true source of alpha or outperformance is coming in through bottom-up stock selection. So across these sectors, there has been a little bit of underperformance on the small and midcap size in the last two to three years specifically.

I think there is a big opportunity in looking at some good names within the small and midcap side. In the last couple of years, we have seen a listing of companies from the unorganised to the organised, right. We have had an Indian ethnic wear company getting listed, we have seen listings in the diagnostic spaces as well as the insurance space.

Many of these sectors are very new sectors in India from a listing perspective and these are the smallcaps and midcaps which are going to become largecaps or multibaggers over the next decade or two. If you have to create that level of outperformance in markets and if the market is looking good, our portfolios tend to be overweight on the small and midcap sector.

Good companies today which represent the consumer diaspora which is representing opportunities in the financial sector and also the Build India team, which is happening through the capital goods and infrastructure space. I would say that all around, there are some great opportunities and more so in the small and midcap space as we look at constructing these portfolios bottom up.

How are you interacting with your distributors across the country? We are seeing a surge of new investors. Also HNIs want to allocate more to the stock markets compared to land and gold which were the historic favourites. The SIP number is only getting stronger by the day. Do you see that trend continue?
Sure. I have literally lived out of a suitcase in the last one year as we set up some 50 odd branches in the last year. We have been interacting with investors right from the smallest locations to the large locations. Clearly, the trend towards financialisation of financial savings is on the upswing. The 5%-6% traditional penetration used to be there in the Rs 40 lakh crore mutual fund market.

We would not be surprised if this more than doubles over the next five years with the healthy trend around savings which seems to be coming in. The distribution partners have actually played an amazing role in creating that level of culture of savings, which are there. We see a lot more distributors engaged in understanding the financial health of their investors, their objectives, as these type of portfolios are getting constructed.

We have had a lull period over the 18 months but if we get into a phase right now where overall different asset classes including both fixed income and equity show a positive trajectory, I am sure you will find a lot more investors showing interest in this.

SIP, of course, has been a great story to support the while the FII flows had petered down but the markets were held quite well by the Rs 13,000-14,000 crore of SIP book. I also see the next phase where the systematic withdrawal plan or people who have created wealth starting to withdraw a little bit from a consumption perspective – both a combination of SIPs and SWPs is going to lead to the next big phase within the asset management industry and the investment pool.



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