2022 Reflections: Looking back and looking ahead

The great reset

2022 was a year of resetting and recalibrating. From the old regime of easy liquidity and extreme low interest rates, 2022 saw one of the fastest and highest rate hikes. Fed has increased rates 7 times by a total of 425 bps since March 2022. The RBI on the other hand has raised rates by a cumulative 225 bps since the start of the tightening cycle in April 2022.

Highest rise in global inflation was accompanied by highest fall in NASDAQ stocks. NASDAQ is down by nearly ~34% YTD. US FAANG stocks took a beating across the board, falling between 30% - 65%. In contrast, both Nifty and Sensex have been up nearly ~3% YTD (Dec 30, 2022). Erosion in equity value and increase in bond yields, resulted in one of the largest mark to market losses in world economy. The U.S. government bond represents an inverted yield curve, with 10-2 year inversion at more than 50bps. This indicates risk off sentiment as a result of concerns fuelled by recessionary pressures in the U.S. All eyes will be on the likely Fed pivot in 2023.

India an outlier

India on the other hand has been an outlier with a resilient economy and emerged as one of the best performers in the EM pack. Surprisingly the developed economies were unprepared for high inflation, energy crisis and climate change. Living on energy exports has hurt global economy. But India has shown resilience in the face of a global energy crisis with a combination of policy measures, facilitative infrastructure and focus on green energy. India today, is the fifth-largest economy in the world and has entered the world’s top five in terms of overall market capitalisation. On the global stage, India’s perception has changed into an economy to look forward to in the coming years. Many of the listed Indian companies have created significant shareholder value during the year. Groups like Reliance, Tata and Adani have seen significant surge in aggregate market cap of the Group taking the overall market cap of the country higher. The sizeable inflow of domestic money (both institutional and retail) kept markets buoyant, acting as a counterforce to outflows from Foreign Institutional Investors (FIIs). It appears that the dominance of DIIs (Domestic Institutional Investors) and retails investors is likely to continue in the new year with FII inflow gaining momentum in 2023.

Corporate India’s balance sheet is fairly strong and has deleveraged significantly. Bank balance sheets are also healthy with decadal low NPAs. While IPO market was slightly mellow compared to the year before, still a total of 90 IPOs entered the market year-to-date as per BSE data. Of these, 38 IPOs were launched on the main board and 52 IPOs on the SME segment. This year also saw the mega LIC IPO, one of the biggest listings in India raising more than Rs 20,000 crore. The EY Global IPO Trends 2022 report states that India was one of the brighter spots in what was an underwhelming year for IPOs globally, with the number of deals witnessing an increase of 3% by volume. According to the report with significant regulatory changes announced in 2022, it will further support more robust IPO activity and governance.

I had the privilege of meeting Hon’ble Finance Minister Smt. Nirmala Sitharaman this year. One must give credit to how timely policies and interventions from both the Government and the RBI insulated India from extraneous shocks to a large extent. Our Finance Minister’s clarity of thought and vision for India was evident during our conversation.

I expect credit growth to pick up big time. An ICRA report suggests that Indian banks are likely to witness a record high credit growth, surpassing the ₹19 trillion in the current fiscal year. Consumption is another theme that will play out strongly. While urban consumption will continue to drive growth, one can expect a revival of rural consumption from the slowdown seen in 2022. A strong Rabi crop and other infrastructure efficiencies augurs well for this pocket of the economy.

While global headwinds will continue to pose challenges in 2023, India is on a strong footing from a long-term perspective. Keeping in mind the macro indicators, asset allocation as per your risk profile is the way to go. Invest in equities for long term wealth creation, park your short-term money in fixed income. Short term yields have gone up spurred by a flurry of rate hikes, while long term bond yields have remained flattish thus compressing the spread between the two. At current yields, short duration funds and two- to three-year corporate bonds provide the best risk-reward ratio. High bond yields also pose a good opportunity for investors to lock in at current levels through instruments like Target Maturity Funds.

An action-packed year

2022 was an action-packed year with a lot of travel, meetings and interactions with my teams and distribution community across the country. After two years of digital meetings, in person meetings were in full steam, travel restrictions were lifted, and colleagues started coming to office.

This was our first full year of operations as a listed entity. The effort has been to create value for our shareholders with a sharp focus on the strategic levers of the business. Emulating the principles of Kaizen, we are committed to making enhancements quarter on quarter, have a milestone driven approach, such that the cumulative impact of all the smaller improvements is a powerful one.

I believe in the long-term potential of the AMC industry in serving the nation and its savers and creating value for everyone. As more Indians come under the ambit of mutual funds aided by the massive digitalisation in the country and popularity of instruments like SIP, there are significant pockets of value creation. Believing in long-term investing as a principle will be the main force driving mutual fund investing rather than investing based on returns and products. Solution-based investing will become the key investment mantra of the entire country.

In today’s world that is highly dependent on the virtual mode of working, the unique approach of prioritising an interpersonal connection with people takes on an entirely new meaning and significance. With Regional Voyage, our flagship distributor event, I covered channel partners from 72 locations across India interacting with 7700 number of Mutual Fund Distributors. In the last four years, I have covered close to 100+ markets pan-India, reaching out to and interacting with over 20,000 distributors and partners, as well as engaging with them personally.

I also had the chance to travel to India’s hinterland during my travels, including my native in Thanjavur. The experiences during these visits have also helped me witness the steady transformation towards financialisation that is taking place in rural India through increased awareness of financial tools and use of digital transactions. It is so reassuring of India’s potential when you see how technology has changed the way we Indians tend to work now. Sitting here in Mumbai, I can remotely keep track of the work going on in my small farmland. Who could have imagined that even a decade ago!

GIFT City is a pioneering idea of creating a planned business district in India. It has become a sought-after business destination and is being developed as a global financial services hub. This year, we inaugurated our office at GIFT-IFSC marking the beginning of our operations from GIFT City.

We launched a pioneering initiative SAHYOG to support staff in the unorganized sector. With SAHYOG one can start a Systematic Investment Plan (SIP) for a personal or domestic staff. This I feel will go a long way to promote financial inclusion in the country and help more people embark on their wealth creation journey.

This year also marks the second year of my second term as AMFI Chairman. The industry body has played an instrumental role in popularising the culture of investment in the country and I look forward to the work we as an industry will do in the coming years.

It was an honour to be recognised in Asia Asset Management’s 25 years list and share space with some of the eminent leaders in the BFSI space in Asia. Grateful for the opportunity to represent my country in a global platform.

Welcoming employees back in office

After working from home for two years, for many it was a complete reset to switch back to pre-pandemic routine. It was heartening to see the young team members owning their work and take initiative, many of whom had met their teams only via digital mode. It is good to see a bustling office, the camaraderie of colleagues and celebrating festivals and achievements together.

On a personal note, 2022 was yet another year that proved that sincerity and sense of duty reaffirms one’s professional integrity and credibility. There are no short cuts in life. One has to do the hard work, continuously, and even when faced with naysayers. Objectivity and rationality at work are essential. Instead of letting emotions get the better of you, it is only with objective assessment that one can identify the gaps and act on them. Decision making or reactions driven by emotions are counter-productive in the workplace. The organisation, its stakeholders, and its culture come first, any given day. To preserve the organisation, tough calls need to be taken when the time comes, even if that brings along unwarranted scenarios. An unyielding commitment to one’s work and creating value for those who repose their trust in us is the only way to cut out any noise and let the noise die a natural death. There is nothing more important than the company, and organisation is always bigger than individuals.

On that note, with great vigour and conviction, here's looking forward to 2023 with its milestones and learning. Here’s wishing a prosperous new year.

Regards,
A. Balasubramanian
Managing Director & CEO
Aditya Birla Sun Life AMC Limited