India’s economic trajectory is poised for significant growth, thanks to evolving tariff dynamics, according to Mihir Vora, Chief Investment Officer at TRUST Mutual Fund. In a recent discussion, Vora expressed optimism about an influx of investment heading towards India, signaling a bright future for the nation’s economy.

Market Corrections: A Predictable Downturn

When asked about the recent market corrections from September’s peak, Vora noted that while a downturn was anticipated, the extent of the decline was surprising. He highlighted that large-cap stocks were the first to experience a dip, followed by mid-cap and small-cap stocks, which had previously shown resilience. This fluctuation was largely attributed to market volatility influenced by global events, including U.S. politics.

• Key Observations:
  • Large-caps corrected before mid- and small-caps.
  • The market is recovering after experiencing significant volatility.
  • External factors, such as Trump’s policies, contributed to market fluctuations.

Investment Strategy During Volatility

During this turbulent period, Vora maintained a consistent investment approach. He emphasized the importance of not making drastic cash allocations, as this strategy often yields mixed results. Instead, he prioritized sector and stock selection, underlining that investors typically conduct their asset allocation before entrusting funds to him.

• Cash Allocation Insights:
  • Generally, only 5-10% cash is held, with normal conditions seeing 2-3%.
  • In December, profits were reallocated from small- and mid-cap stocks to undervalued financials.
  • Anticipated interest rate decreases influenced sector allocation decisions.

Focus on Industrial Growth

Vora highlighted a strong preference for investments in the industrial sector, noting its crucial role in driving economic growth. He posited that to achieve a GDP growth rate exceeding 5.5%, significant investment in infrastructure, manufacturing, and real estate is essential. Specific sectors like chemicals, automotive components, and defense are also on his radar.

• Investment Highlights:
  • Financials are favored due to their connection to economic growth and demographics.
  • Physical asset creation is vital for achieving higher GDP growth targets.

Shifts in Foreign Investment Flows

Regarding the foreign investment landscape, Vora observed a shift in sentiment towards China and the U.S. The ongoing trade tensions have made foreign investors more cautious about China, which has struggled to attract attention. Meanwhile, the U.S. economy has seen fluctuating interest due to rising long bond yields and a significant increase in the debt-to-GDP ratio post-COVID-19.

• Key Insights:
  • Concerns over China’s trade situation have led to reduced interest from foreign investors.
  • The U.S. dollar’s strength is waning, prompting capital to flow back into emerging markets, including India.

Positive Trends in Foreign Institutional Investments (FIIs)

Vora pointed out that foreign institutional investors (FIIs) have shown positive trends over the last ten days. Historically, FIIs have not consistently sold off for two consecutive years, suggesting a potential turnaround for India’s investment appeal. Factors contributing to this positive outlook include a stable rupee, declining oil prices, and rising gold prices.

• Current Investment Climate:
  • India remains the fastest-growing large economy globally.
  • Stability in the rupee and favorable commodity prices enhance investor confidence.

TRUST’s Flexicap Fund Performance

Recently, TRUST’s flexicap fund crossed the impressive milestone of ₹1,000 crore in assets under management (AUM). Vora elaborated on their market cap-agnostic approach, focusing on bottom-up stock selection rather than rigid allocation strategies. This flexibility has allowed them to capitalize on profitable small-cap investments while reallocating funds into promising NBFCs and banks.

• Fund Management Approach:
  • Emphasis on bottom-up stock selection.
  • Diversification and risk control as guiding principles.
  • Strategic shifts in holdings based on performance evaluations.

In conclusion, with the right strategies and a focus on emerging opportunities, India is on track to attract more investment and bolster its economic growth in the coming years.