In terms of the risk-return ratio, where do you think we are when it comes to the return potential?
We will have to moderate expectations from equities. The problem is ending a financial year like 2021 where equities have done what they have done. We will have to moderate expectations from equities going forward. We have been saying this since November that not having equities is a risk and being underweight on equities is a risk. We put out a note that within equities, the wealth creation upside is probably more favourable towards broader markets because they have trailed significantly and we are seeing some signs of that reversion happening.
On the equity side, the story lies in broader markets for us. On the fixed income side, there is an interesting opportunity for long-term investors because of the way bond yields have moved. Bond yields are up 1% over the last couple of weeks in an unexpected move. If you are looking to lock in money in PSU and SDL bonds, in the five-seven year end of the yield curve, there is a very interesting wealth creation opportunity where you could realise 5.7-6% post tax.
Apart from factors like strong corporate governance and high return ratios, what would be the checklist for investing in companies within the emerging markets?
In our emerging markets funds, the theme is growth-oriented companies and also companies that are going to go beyond the traditional ROE and management metrics and which have tailwinds from the Covid crisis. That is why a lot of the portfolios today are very heavy on their tilt to technology, on their tilt to online and ecommerce companies. But it is also companies that have significant tailwinds out of Covid.
