Daily Voice: This fund manager is betting big on largecaps In the run-up to polls

Anirudh Garg, partner and fund manager, Invasset, still advises caution on mid and smallcap segments even though some of the froth has been cleared, particularly since February.

Invasset portfolio is 100 percent largecaps, said Garg, who has 15 years of market experience and uses AI algorithmic models. Leading up to elections, largecaps offer a more resilient investment avenue despite the overall market structure showing signs of weakness, he tells Moneycontrol in an interview. Edited excerpts:

Do you expect the savings industry to grow significantly in the coming years? Which are the segments that will benefit the most?

The savings and investment landscape in India is experiencing dynamic growth, especially in the realms of mutual funds, SIPs (systematic investment plans), PMS (portfolio management services), and AIFs (alternative investment funds). The AIF and PMS segments are expected to grow at a compound annual growth rate (CAGR) of 26 percent, reaching an impressive Rs 43 lakh crore by 2028.

Simultaneously, the mutual fund industry has seen a significant evolution over the last decade, with a noticeable increase in SIP contributions. SIPs have doubled in number, and the average monthly SIP contribution has risen by 18 percent. This growth underscores the increasing participation of smaller cities in mutual fund investments, which now account for 17 percent of the total industry AUM.

Has the froth in midcap and smallcaps now cleared and is it a good time to buy in both segments?

Currently, there's a nuanced view regarding investment opportunities in mid and smallcap segments. While some froth has indeed been cleared from these segments, particularly after the adjustments observed from February to March, caution is still advised. Specifically, we anticipate that largecaps have the potential to rise by up to 10 percent or fall by a similar margin, whereas mid and small caps could see fluctuations of 20 percent, indicating higher volatility and risk.

In light of this, our strategy has pivoted towards largecaps, which now comprise 100 percent of our portfolio. This shift is driven by our assessment that leading up to the elections, largecaps offer a more resilient investment avenue despite the overall market structure showing signs of weakness.

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Will the earnings growth be better in FY25 compared to FY24?

Expectations are set for continued strong earnings momentum, projecting over 20 percent growth for FY24. However, looking ahead to FY25, the pace of growth is anticipated to slow. This perspective is particularly relevant given the backdrop of market volatility and major upcoming events such as elections in both India and the US.

Do you think the Federal Reserve go beyond three rate cuts in the current calendar year, especially after the latest commentary?

Given the Federal Reserve's cautious optimism and the emphasis on requiring more promising inflation data before considering rate cuts, it seems unlikely that the Fed will go beyond three rate cuts in the current calendar year. This aligns with the wisdom gained from 17 years of experience: "Never fight the Fed."

The Fed's stance suggests a careful approach to rate adjustment, focusing on inflation trends moving towards their target before initiating further cuts.

Despite recent volatility and correction in the market, there is no impact on the flow of SME IPOs. Does it mean it is unstoppable?

The resilience of SME IPOs amid market swings doesn't mean they're bulletproof. There's real worry about the SME IPO and options market luring investors with the false hope of quick, large gains.

The rules around SME IPO listings are soft, making it easy for not-so-genuine companies to get listed. While SEBI is stepping up to tackle these issues, the whole listing process needs a serious upgrade to protect investors.

Have you changed your bets after the recent correction?

Our response to the recent market correction involved a strategic shift in our investment focus. Alerted by early warnings of overvaluation in the mid and smallcap segments around mid-January 2024, we began transitioning our investments towards largecaps throughout February, executing this shift in carefully planned stages.

Our decision-making process is guided by a cautious approach to the risk-reward matrix, preferring low-risk and medium-return scenarios to higher risk, higher return ones. This approach aligns with our commitment to safeguarding our investors' interests through prudent investment strategies.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.