Investment Portfolio to Generate Real Returns – Varun Manmohan Kapur, Yes Bank, Former President Currently an Independent Investor

With interest rates exceptionally low and their hardening to generate “real” returns unlikely in the … Business Wire India

With interest rates exceptionally low and their hardening to generate “real” returns unlikely in the near term, investors have to look at diversified avenues in order to generate requisite risk-adjusted returns, said Varun Kapur Yes Bank Former President & Presently an Independent Investor.

Debt – As yields on bank fixed deposits are low, investors can look at InVITs, REITs, MLDs (Market Linked Debentures), NCDs as alternative instruments to generate returns well above FDs. Investors will need to consider ratings of these instruments, pedigree of the issuer, their most recent financial results, impact on covid/lockdowns on their business model among other factors before selecting the specific paper.

Balanced – While slightly riskier than conventional deposits and debt, investors can park some monies in arbitrage funds. Several AMCs offer well-run arb funds and returns have in general been higher than FDs.

Equities – Financial year 20-21 was exceptional for this asset class. In order to generate “real” returns, investors may need to create a well thought through equities portfolio. These investments can be split into 3 buckets: a) core investments – these will be fundamentally very sound companies which have the ware withal to withstand impacts of lockdowns and the covid crisis. Look for good management teams, sectors that are defensive, and results of Q3 and Q4 (FY21) reflecting possible turnarounds in the business. This core portfolio will be in the HOLD category to generate decent risk-adjusted returns in the medium-long term (vide capital appreciation and dividends); b) trading portfolio – this is an opportunistic book finding dislocations in prices compared to fundamentals and long-term views on businesses. The current pandemic will throw up such opportunities and investors will need to create some kind of a churn heavy / trading portfolio to make returns in the short-medium term (by either going long or short); c) international equities – US is back and how – their economy printed 6.4% GDP growth in Q1-CY21. Since stock-specific understanding of Indian investors may be low, investors can choose bell weathers in sectors like big tech (Apple, Amazon, Google, Microsoft) which is a relatively safer category (owing to size and pedigree), have generated excellent results off-late (actually benefited in the backdrop of the pandemic) and will most likely continue to do so with some “consumer habits changing for good” post covid. Some exposure to US large-cap equities (or a well-understood thematic index) will also provide a cushion from under-performance if any in Indian equities in case the current lockdown in India prolongs for significantly long.

Investors will need to consider their respective risk appetites before allocating funds and weightages to the above-mentioned asset classes. But what the great Warren Buffett famously once said continues to hold. “If you don’t find a way to make money while you sleep, you will work until you die”.

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