Markets hit by deeper corrections may outperform India: Morningstar CEO

Indian investors doing right by holding on during corrections, says Kunal Kapoor

Foreign investors are unlikely to make fresh inflows to India unless there's clarity on global inflation and interest rates, said Kunal Kapoor, chief executive officer of Morningstar, the Chicago-based financial services firm. Global markets that witnessed deeper corrections in 2022 could fare better than India over the next few years, said Kapoor in a video interview. Here are edited excerpts from the interview with Abhishek Kumar.

Why has the number of investment advisors remained low in India despite rising wealth?
 

The advisory business in India is still in its early stages. Investors are not yet open to paying for financial advice. I think the industry will grow gradually as the wealth rises, in line with what we have seen across the globe. Also, the industry has to evolve to the global standards where investment advisory is much more than picking stocks and funds. Holistic financial planning is what people want. Changes in the structural front can also help. At present, there are stringent qualification and net worth criteria. Investment advisors are also known to be unhappy with the extensive documentation requirements and capping of fees. Overall, value addition to the services and structural changes can drive growth in this industry.

Investor behaviour in India appears to be changing. Instead of panic selling, money is invested during corrections. Is this the right strategy?
 

'Buying and holding' is always the right strategy. The investments should be in sync with the goals and time horizon. However, what Indian investors are doing is a positive change, if true. Historically, the reverse used to happen: retail investors are known to 'buy high and sell low'. The fact that India has not seen a sustained downturn in the recent past may have given investors the confidence to hold on to their investments during corrections. Whatever the reason, if investors are buying on the dip that's a positive. Our 'Mind the Gap' report shows that investors generally get lower returns than what mutual fund schemes show due to improper entry and exit points. It will be interesting to see if that changes in India going ahead.

FPIs pulled out a record sum from Indian markets in 2022. Do you expect outflows to continue in 2023?
 

It is always hard to predict inflows and outflows. In 2022, risky assets were sold across the world, irrespective of the return prospects. India's performance was relatively better but it still saw outflows. Investors are still looking for stability around global inflation and interest rates and unless that happens, inflows seem difficult. Although outflows may subside. If you are a long-term investor, these things shouldn't matter. India is still partly attractive.

Which market is most attractive right now?

It would be difficult to pick one market with the way we evaluate economies. From our perspective, the developed markets seem attractive from a 3-5 year time horizon. Also, some emerging markets which saw heavy selling last year can do well. Considering that India's relative outperformance in 2022 has kept the valuations on the higher side, the country may underperform over the next five years compared to markets which went through major corrections in 2022.

If you were to make fresh investments in India, how would your asset allocation look like?
 

Since Indian equities relatively outperformed last year and interest rates have gone up, equity allocation can be trimmed and invested in fixed income. We always advise investors not to worry too much about short-term volatility and try to game it. Indian investors have always gained by investing in equities with a long-term view. There's no need to do anything dramatic right now. Shifting the allocation slightly towards debt from equity is the only thing I would suggest.

What does Morningstar plan for India?
 

From a local market perspective, we are continuing to work with financial advisors here by providing them with software and asset management services. We will continue to build on that and also expand our data and research verticals. In India, we now have almost 5,000 employees supporting our global operations. We will expand the team further going ahead.