Tnvesting during a recession is a good idea' Equities remain depressed amid inflationary concerns, along with growing recession fears. TRIDEEP BHATTACHARYA, chief investment officer-equities at Edelweiss Asset Management, tells Nikita Vashisht that markets are testing investor patience in the near term. Edited excerpts: Doyouthink Indian equity markets willbe able to surprise and deliver as opposed tothe expectation of negative returns in 2022? The period between January 2022 and March 2023 should be seen as a tale of two halves. The first six to nine months of financials. Direct and indirect plays of real estate will be another area. Some beneficiaries of government initiatives, like the production-linked incentive scheme, will be another area where there will be strong alpha creation. Do you think steepinterestrate hikes could lead to economic Slowdown, domestically and/or globally? There could be an impact On growth. Whether there will be global recession will become evident over the next three to five months. In India, inflation remains manageable. Invethis year (until July or August) TRIDEEP sting during a recession is a will see greater volatility, 2nd BHATTACHARYA good idea. Returns usually making money will be diffiCO-Equities, come in when there is famine cult. From a medium-term standpoint, we are constructive on Indian equities. Our advice is to put money into equities rather than steering clear. 2022 is a year of investing in markets. Which sectors willlead market recovery? With expectations of private capital expenditure picking up, we like domestic cyclicals like capital goods and Edelweiss Asset Management outside from a threeto five-year standpoint. Bothequity and debt mutual funds (MFs) ate seeing negative returns. How should investors rejig theirportfolioin such a situation? While equity markets are testing investor patience in the near term, we surmise that 75-80 per cent of negative news flow is captured in stock prices at current levels. Investors should start v allocating incremental money towards equities with a medium-term view. Risk-averse investors, with a oneto three-year time horizon, may look at large-/mid-/flexi-cap funds. However, those who have a fiveto 10-year horizon should look at a focused equity The short-term volatility has led to a deferment of initial public offerings. As we enter the second half, we might see fund-raising activity start over. Earlier, around 25-30 per cent of global money was earning negative interest rates due to a low-rate regime. Now, the internal a rate of return of a projWHILE EQUITY MARKETS = Pet moods to iver the ARE TESTING INVESTOR ~ PATIENCE IN THE NEAR TERM, = terms of funding. WE SURMISE THAT 75-80% Doyou expect flows into OF NEGATIVE NEWS FLOW 1S equity-linked MF TTT N STOCK PRICES osvcehrethmeesnteonslfoedeOWll LEVELS" months as recession grips major world fund or a mid-cap fund. Experts see primary market activity getting impacted as secondary markets remain choppy. How will companies raise funds since rising interestrates will make debt expensive? economies and risk aversion increases? Domestic investments have been more resilient this time around than the global financial crisis (GFC) of 2008. Foreign institutional investment outflows, since October 2021, have surpassed levels seen during GFC. Back then, equity markets had corrected 60-70 per cent. This time, the correction has only been about 15 per cent. Domestic investors have filled FIIs' shoes. Domestic investors are evolving structurally. Doyouexpect competition in the MF industry to intensify, given the improved market dept? Ido see more technology (tech-based players entering the market who would make the market richer in terms of choices available to investors. To that extent, there may also be consolidation in the asset management industry. Traditional players should start investing in tech. About 85-90 per cent of MF transactions, incrementally, are being done online. However, investment penetration beyond tier 1 or 2 is still limited. Whatis your expectation from India Inc's June quarter numbers? Commodity users will continue to see margin decline, driven by high commodity prices. Commodity earners will have robust earnings. Within financials, private players should perform better. Public players, meanwhile, should be able to offset treasury losses with improved credit growth. What isthe idealasset allocation right now? Within equities, large-caps perform better during volatile times, but midcaps are the wealth creators for emerging markets. A mix-and-match strategy is the best way. Given that we are moving from a deflationary scenario to an inflationary one, gold should be part of an investor portfolio.