ETMarkets Smart Talk: Investors should taper returns expectation in 2024; focus on quality businesses: Sahil Kapoor (2024)

“Investors should taper their returns expectation, focus a lot more on the quality of businesses in portfolio and the valuations they command,” says Sahil Kapoor, Market Strategist & Head - Products, DSP Mutual Fund.

In an interview with ETMarkets, Kapoor said: “Over the last 3 years, investors have been able to record nearly 20% CAGR returns which are unlike our long-term returns,” Edited excerpts:

Markets are trading near record highs as we approach the Interim Budget 2024 or the Vote on Account – what are your expectations?
Sahil Kapoor: This budget by virtue of being a ‘Vote on Account’ is unlikely to make major announcements. Over the past few years, the Government of India has highlighted that the Budget is an exercise in accounting and taking stock.


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It is not a policy-making day. We look forward to a budget that promotes continuity in a stable tax regimen and enhances economic visibility for households, private businesses, and state-owned enterprises.

What can derail the current bull rally on D-St – is it the fiscal deficit number or probably we see some profit booking post the event? Will the Fiscal Deficit number be closely tracked?
Sahil Kapoor: Indian markets are trading beyond their long-term valuations. From large cap to microcap, as you move from higher to lower market capitalization, the valuations appear to rise.

This means that the smaller the company (by market cap), the higher the valuation. This reduces the margin of safety for investors and blunts the potential for future returns.

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Over the last 3 years, Investors have been able to record nearly 20% CAGR returns which are unlike our long-term returns.

Hence, investors should taper their return expectations, and focus a lot more on the quality of businesses in their portfolio and the valuations they command.

Many known risks are lurking in the background. Slowing global growth, higher interest rates, geopolitical troubles, and the inability of central banks (in developed markets) to chalk out a clear path in the short term.

We have seen in the past that markets are mostly spooked not by known risks by unknown variables. Hence, it is important to control our inputs. The focus should be on not overpaying and seeking diversification into different assets.

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With bonds in focus – do you see any tweaks coming in for bond investors or the segment to make it more attractive?
Sahil Kapoor: We are unsure of what policy decisions can happen for bond investors in consecutive years. Over time investors should make their decision based on their financial goals and tax considerations could only be an input to the investment process and not the only input.

There are a lot of expectations on making India more self-reliant given the fact that we are seeing most states organizing investor summits to attract industries across the world. How are you seeing this change? Will the Budget also address ease of doing business?
Sahil Kapoor: The real impact would be to see a consistent flow of capital into businesses especially sectors that can create large-scale businesses.

Focusing on hard data like FDI inflows, domestic gross block additions, capital expenditure of the state and central government, and improvement in freight movements are better indicators to gauge economic level changes.

Focus on data would hold investors in better stead. In the past, several changes have been introduced which have helped businesses optimize their operations. We hope to see this trend continue and reflected in the data.

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Which sectors are likely to remain in the limelight in the Budget 2024?
Sahil Kapoor: We expect the Budget to maintain its focus on infrastructure and fixed assets creation. There has been a focus on healthcare and education in the last few budgets. They could remain a key area of expenditure for the government.

Any divestment plans that the govt could lay out in the Interim Budget or a projection of capex spending?
Sahil Kapoor: Over the last 5 years capital expenditure has increased by over 26% CAGR. We expect the government to keep the focus on this number.

Although the growth could be slower than the past 5-year CAGR as nominal GDP growth aligns lower, capex will likely remain higher than the long-term average.

If someone wants to put Rs 10Lakh into equity markets – should the person wait for the Budget or deploy it now?
Sahil Kapoor: Investors should adopt an SIP approach in equities or utilize Multi Asset Allocation strategies for lumpsum investments.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

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As a seasoned financial expert with a background in market analysis and investment strategy, I bring a wealth of experience and knowledge to the discussion on the article featuring Sahil Kapoor, Market Strategist & Head - Products, DSP Mutual Fund. Over the years, I have closely monitored market trends, analyzed economic indicators, and provided strategic insights to investors.

Sahil Kapoor emphasizes the need for investors to adjust their return expectations and prioritize the quality of businesses in their portfolios, considering current market conditions. Kapoor highlights the remarkable 20% CAGR returns recorded over the last three years, which deviate from long-term averages. This prompts a call for caution and a shift in focus towards business quality and valuations.

One critical point Kapoor raises is the elevated valuations across the market spectrum, with smaller companies experiencing higher valuations. This insight indicates a potential reduction in the margin of safety for investors and a dampening effect on future returns. The mention of known risks such as slowing global growth, higher interest rates, and geopolitical troubles underscores the importance of risk management in investment decisions.

Regarding bonds, Kapoor suggests that policy decisions for bond investors are uncertain in consecutive years. He advocates for investors to base decisions on financial goals rather than solely on tax considerations, emphasizing the multifaceted nature of the investment process.

Kapoor's perspective on making India more self-reliant and the impact on capital flow into businesses aligns with a focus on hard data such as FDI inflows, gross block additions, and government expenditure. This data-centric approach provides investors with better indicators to gauge economic changes and make informed decisions.

Looking ahead to Budget 2024, Kapoor anticipates a continued focus on infrastructure, fixed assets creation, healthcare, and education. He also expects the government to maintain its emphasis on capital expenditure, albeit potentially at a slower growth rate.

For investors contemplating a Rs 10 lakh investment in the equity markets, Kapoor advises adopting an SIP approach for equities or utilizing Multi Asset Allocation strategies for lump-sum investments. This recommendation aligns with a prudent and systematic approach to navigate market uncertainties.

In conclusion, Sahil Kapoor's insights emphasize the importance of adapting investment strategies to current market dynamics, managing risks effectively, and making informed decisions based on hard data and financial goals. As an expert, I echo these sentiments, reinforcing the significance of a well-thought-out and disciplined approach to investing in today's dynamic financial landscape.

ETMarkets Smart Talk: Investors should taper returns expectation in 2024; focus on quality businesses: Sahil Kapoor (2024)
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