India vs Global Economy 2025 What Investors Need to Know ft. Prashant Sharma CA Rachana Ranade

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[00:00:38] Hey folks, CA Rachana Ranade here and I welcome you all to a very very interesting podcast. SUD Life Ka Fundah. Now I'll tell you what is so special about today's podcast. There have been a lot of comments on my channel wherein people are really confused about what is the overall global scenario right now. What is the overall Indian scenario right now? Because what we have seen in the past few months is that market hit an all time high of around 26,300. Post that we saw a correction of almost 16 to 17 percent.

[00:01:07] So we hit a low of around 21,800. And since then we have seen a nice recovery in the markets and we have been lingering around that 25,000 mark right now. So many people do have this question that what are the next few things that we have to track? What's going on around the globe? How could these impact the global markets and the Indian markets?

[00:01:27] So today I thought why not invite an expert on our channel and that is the reason why we have with us Mr. Prashant who is the CIO of Star Union Daiichi Life. That is SUD Life. And I'm sure this is going to be a podcast wherein you're going to literally learn so much that you would want to take down some notes from today's podcast. So a big welcome to you Prashant. Thank you for joining us. Thanks Roshna for having me. It's a pleasure being with you. Thank you so much.

[00:01:53] So like I said right everyone is really really confused right now. Okay what next? Because so many things are going around the globe right now be it Russia Ukraine be it something like tariff pressure be it India Pakistan situation. So general investors a normal retail individual investor is not really sure about which events he or she needs to track which will be the important ones which can impact the market. So how do these people go around tracking these events and what which events according to you are really important?

[00:02:24] See we are living in very interesting times. The global mark the global economies are devoid of growth in general. Especially the developed markets most developed markets were struggling to grow. US was an exception to some extent but with the things that are happening now over the last few months even US is becoming a question mark. China we all know was which was actually carrying the bulk of global growth for the last couple of decades is also slowing down significantly.

[00:02:54] So this is an environment where there is hardly any growth available in most markets. And in that case India is looking like a very bright spot where there is decent growth sustainable stable robust. And people are looking at India as a very important place to park money. Now what is happening globally is besides growth concerns there is there has been intermittent inflation pressure. Correct. Which actually got triggered to some extent by COVID.

[00:03:23] Around COVID is when most central banks pumped in a lot of money and hence there was too much liquidity. In my view it actually corrected some of the anomalies that were existing in the past. For example pre-COVID we saw a period of negative interest rates in some of the markets. Well isn't that bizarre? Yeah. I am saying it tantamounts to people being paid to borrow money. Yeah absolutely. So post-COVID at least the risk got repriced appropriately in that sense.

[00:03:51] And a lot of these markets saw a fair bit of inflation. And bond yields which had hit a low of let's say for US about 0.5% for countries like Germany significantly negative. Japan negative. So all of that got corrected because there was inflation and there were generations who had not seen inflation. So everybody was kind of taken aback. And bond yields also went up. Yeah. We saw US bond yields go up to as high as 5%. And we are currently hovering around 4.5% or 4.60%.

[00:04:18] So a lot of things are happening at the same time. And with a number of economies now becoming more inward looking. For example everybody is trying to protect its own interest. Yeah. What is that resulting in is everybody wants to now manufacture in house. Earlier for the last couple of decades China was the manufacturing powerhouse of the world. Correct. And in some sense because they were so efficient they were exporting disinflation to the rest of the world. And hence there was very little inflation and hence bond yields had come down. Interestate had come down.

[00:04:48] Absolutely. And in some sense US bond yields decide the cost of capital for the rest of the world. Absolutely. So when US bond yields came down from close to 13-14% in early 80s to 0. So was it that high? It was 13-14% in early 80s. Okay. It came down to as low as 0.5% in 2020. So people of certain generations had seen only interest rates coming down. True. So all of a sudden that changed. And a number of people, a number of central banks, a number of government did not know how to react to it.

[00:05:18] And hence now we are seeing that transition period where things are happening. As I said US being the cornerstone of global cost of capital. Now when its bond yields are going up and its fiscal deficit is looking completely out of control. So when the central banks actually pumped a lot of money, their balance sheets also went for a toss. So most advanced economies, the debt to GDP is upwards of 100%. And that's probably the period, the point at which things start becoming a little unsustainable.

[00:05:46] So US has also reached that point. Correct. Over the last 10 odd years, bulk of the money, global money went to US. And in some sense a sort of a bubble got created in the US equity markets at least. Okay. US became close to 60% of MSCI global index in terms of weightages. US being 25% of global GDP. Its market cap was about 60 odd percent of global market cap. So all of that happened and now its correcting, correcting faster.

[00:06:16] At least people are thinking that US is no longer the only market which commands that respect, that allocation and so on and so forth. And hence money has started moving out. We have seen US dollar correct significantly. It's below 100 now. DXY dollar index is below 100. And US bond deals, as I said, have gone up. Correct. The US hegemony which existed for the last several decades is now under question. From being a unipolar world, it's now becoming a multipolar world.

[00:06:45] As I said, now everybody is trying to look at its own interest and hence everybody wants to manufacture in house. Now what it certainly does is, you are certainly not the most efficient producer of things. Absolutely. Because you are importing from China and hence your consumers also benefited from lower prices. Correct. Now when you want to manufacture yourself or put in tariffs, which is now the buzzword, everything starts becoming more expensive forever. So I see a period where inflation will continue to remain high for the foreseeable future.

[00:07:15] So that environment has completely changed or is it, it's looking like changing from disinflation for a couple of decades to in my view an inflationary period ahead. So that is a very big change happening and hence my personal view is that bond yields will remain elevated which at some point will disrupt financial markets. It is, you can say it is in the process of happening. But most likely what will happen is when it starts really disrupting financial markets, the governments and central banks will try and control it.

[00:07:44] So that's when inflation will probably go up higher in my view because what you do is you will probably try and keep interest rates lower. But and hence the demand is certainly there and hence inflation will remain higher. And we are already seeing signs of that reflecting some of the asset classes already. For example, you see how gold has rallied. Correct. Correct. And that is telling you that the paper currency is losing value. People are losing faith in paper and people are looking at hard assets.

[00:08:13] And I see this trend continuing for the next few years. So that's a very big change. The equity markets will remain volatile. I think we have seen some bout of volatility. But I think the bigger bout of volatility is yet to come. True. I'll cut you in between because there was a very important point that you made that the yields are rising right now. And you mentioned that there is a great chance that in the foreseeable future they may keep on continue to rise. But in that case if US were to refinance its debt, I'm sure they'll have to do it at a higher rate of interest. Again, that will bring in more pain for the US economy.

[00:08:43] That's correct. And those economies like someone like Japan or China who have bought a lot of US bonds, they are the ones to benefit. So would that also mean that there will be a kind of distribution of power in the globe rather than US being the dada of financial markets? I almost hinted at that US hegemony in my view is over. Now there are multipolar worlds and China is actually commanding its own respect. It's saying, okay, I'll do things which benefit me.

[00:09:10] And in my view, US is no longer able to bully China. So they tried doing it through the tariffs but they had to step back. And I think that will continue. I think tariffs will now become a negotiation tool. But by and large, I think the US in some sense has peaked from its importance point of view. True. While it doesn't, generally economies take decades for, things probably take decades for economies to kind of turn around like that.

[00:09:36] But by and large, I would say, you've seen a period where the US economy or US power or US dada giri as you rightly said is probably peak. And we'll start seeing things come down over a period of time. And hence, different pockets will emerge. For example, China-Russia access could be stronger. Maybe India-Japan could be stronger. Some of the Gulf nations could come together and become stronger. There will be pockets which will probably become more important. Europe is also now standing up and saying, okay, we thought US was our friend.

[00:10:06] But now that they have been disowned in some sense as well. So I think everybody will now re-look at what their interests are. And hence, re-group and have their own strategies. True. So like you also said, right? Every country is trying to look at itself. So it's more like an inward-looking economy. So US is like MAGA, make America great again. We are already talking about Atmanirbhar Bharat. But if I were to take our discussion back to US and manufacturing in the United States, is it really feasible?

[00:10:36] I mean, three decades you have been giving that to China, building the whole supply chain in the United States, getting that raw material at the desired prices. Won't that in fact shoot inflation to another different level? So I think they will try and do that. But at some point they'll have to step back. For example... Trump stepping back? I think he steps back practically every day. So depending on which side of the bed he wakes up from, he will decide what he wants to do. So that volatility is for sure. So when people were...

[00:11:05] When the elections were coming, when the US elections were happening, somebody asked me, what do you expect? I say, I only expect volatility. Because it will depend on how is his mood on a particular morning. So he'll keep doing that. But having said that, it's not easy. For example, China has dominated the entire global manufacturing and supply chains have been set accordingly. Now in some sense you're trying to disrupt those supply chains and create new ones. Not going to be easy. As you also rightly said, there will be inflationary pressure because you're disrupting something which was very efficient. Correct.

[00:11:35] And trying to recreate something which is not as efficient. So there will be inflationary pressures. But at the same time what will also happen is people like US will realize that it's not feasible to do the entire thing. What they'll do is to make China less important, they will look for more alternatives. So everybody's now looking at China plus one alternative or they're creating new supply chains, new manufacturing setups and so on and so forth. Countries like India, we stand a very good chance.

[00:12:03] And I see a number of policies which are supportive of that. I only hope all of this happens fast enough. Exactly. For example, if we have to capture this so-called China plus one opportunity, it has to happen in the next few years. Otherwise we'll miss it. So that is something again which is emerging very clearly and tariffs will remain. I think I personally don't get too worried about these things because they can change.

[00:12:27] They are only a negotiation tool in my view and they can keep changing and India should do well in terms of ensuring its own interest by doing some of these important trade agreements on a bilateral basis. Okay, we'll do like this with US, we'll do like this with Europe, we'll behave in a particular way with Japan and so on and so forth, which is the right thing to do. But seize this opportunity. Correct. Because even from an India standpoint, it is very important that we become, our share of manufacturing goes up significantly. And this can only happen if we seize this opportunity.

[00:12:56] This opportunity has probably come as a God's blessing for India. And we should certainly seize it. I was just trying to check the GDP because recently, you know, the news came up from Neeti Aayog as well that we have climbed up the ladder. And from being the fifth largest economy in the world in terms of GDP, now we are at number four, we have overtaken Japan. It's expected that by 2028 latest, we should be overtaking Germany as well. But then from going from number three to number two, it's such a steep climb. For China, it has been nine times.

[00:13:26] And then I was just, you know, trying to figure out that what are the components of their GDP contribution versus ours. Everyone is talking about China plus one. But then if we were to increase our manufacturing share, then how can we do that? If you were the policy maker, what would you have done to ensure that manufacturing picks up in India like this? Yeah. So the policy makers are trying to do some of the things like having PLI, inviting people to set up shop in India.

[00:13:56] I think one clearly, one clear message is that we need to create appropriate infrastructure. Which is also happening, but it's happening, I would say, rather slowly. And it's right, when you rightly said that India will now become the third largest economy in the world, while it's a very good thing to acknowledge and be happy about, we should also try and do, have a more global voice. For example, when you are the third largest, you should make your presence felt.

[00:14:21] You should have a say in global agendas, global economic policies, bilateral trades, geopolitics, and so on and so forth. So I think India has done a commendable job in the last 10 years in terms of its foreign policy. I think we now stand our own ground and we are not deterred by anybody else. So I think that part is happening fairly well. But yes, we need to solve our internal problem of creating enough jobs for our people. We are the largest in terms of population.

[00:14:49] Roughly 1.5 crore people get added to the workforce every year. The biggest opportunity or biggest threat for India is to employ all of these people productively. Yeah, absolutely. And that can happen perhaps only through if we have a much larger manufacturing base. We are doing quite a few things, but I think it should happen probably more quickly. And we have to create the right infrastructure, right environment, be it regulatory reforms, be it legal reforms. All of that has to happen at a very fast pace.

[00:15:18] My fear is that if we don't do this fast enough, the opportunity that we could have seized will probably get missed to some extent. Yeah, true. So I think that a lot of that should. And interestingly, we are now seeing India having its own policies which may be very different from other countries. For example, there are countries which are raising interest rates and bond yields are going up. Yeah. We are one of the very few markets, stable markets where the bond yields are coming down.

[00:15:46] They are coming down in China also, but that is more because of deflationary pressures and not because of anything else. But if you look at it, right now Indian bond yields are only about 180 basis points higher than the US. In our history, that has happened only once or twice that bond deals, difference between Indian bond deals and US bond deals is so low. Correct. And I can certainly see US moving towards 5% and India moving towards 6%.

[00:16:13] So the bond deal gap will become only 100 basis points. Correct. Which tells a lot. So in some sense, if you step back and think, the risk of US and advanced economies is going up. And the risk attributed to India is coming down. Amazing. And when that is happening, the cost of capital for India should be lower. Absolutely. Our rating at some point should get upgraded. Recently it got upgraded. I'm saying far higher. Far higher. Far higher. US is getting downgraded. It should have happened long back.

[00:16:42] To be fair, this is only one of the rating agencies downgrading US recently, but it should have happened long back. I think Moody's recently downgraded. Yes, so it should happen. And I think India's rating upgrade is far overdue. So if you look at India's macro, I think we haven't had it so good for the last few decades, I would say. Probably ever. So our growth is stable. I would argue we should grow more. But 6.5-7% we are amongst the fastest. Correct.

[00:17:10] While it's good to acknowledge, but I don't think we can pat ourselves on the back as far as growth is concerned. But every other element, for example inflation, stable under control. We are below 4%, which is very good for an economy like this. Our current account deficit is below 1%. And the other day I was making a presentation to our internal folks. And I said, I am taking a bet that in the foreseeable future, our current account would be closer to zero. Wow.

[00:17:37] If not surplus, at some point we'll come very close to zero. Amazing. And that's the time when I expect the Indian currency to start appreciating. Getting stronger. Yeah. We have only seen periods where Indian currency is weakened. Indian currency weakens by 4% every year on an average. I'm looking for that time when Indian currency appreciates by that margin. In that case, do you see that the foreign inflows would be higher in India as well?

[00:18:03] Because right now what they calculate is let's say they are getting a 12% return, mota moti. And then there'll be a 4% currency depreciation. Then again taxes. So ultimately it boils down to a percentage which is barely a percent or two higher than their own bond yields. 100%. So if there were to be a currency appreciation, then I'm sure the game will change, right? I am expecting that environment. Not many people talk about it, but it's there at the back of my mind that this environment is not too far.

[00:18:31] And I did touch upon US commanding bulk of the global flows in the last couple of decades. In the last decade at least, where its equity market got overheated. It's obviously commanded allocation both in debt as well as equity. Central banks were very happy parking money in US bond yields because they did not want their currencies to rise and so forth. But now there's a risk associated with US.

[00:18:56] With its current fiscal position, there are possibilities while US will not default. But there are concerns around whether I should be holding a 30-year bond at this yield or I need a proper compensation for the risk associated with that economy. So what I foresee is both from bond and equity, a lot of money will either come out from the US or the fresh allocations will not happen. Absolutely.

[00:19:20] Now that global money which is floating around is looking for better revenues because they're obviously chasing returns and stability. When a country which is growing at 6.5-7%, I expect it to be 8-9% at some point, its currency is appreciating, bond yields are stable or coming down, fiscal is under control and coming down. The corporate sector is great. I think our corporate India, we talked a little less about corporate India but its doing exceedingly well.

[00:19:50] Its just that they are also waiting for that growth pick up and that's when they will also start investing. So it's probably putting in an environment where that global money is looking for options and India would provide a great option in that environment. See, China is history in some sense and its become uninvestable to some extent for most global markets while there will be periods when China will outperform. For example, it became so cheap about 8-9 months back that everybody wanted to look at China as an alternative because it became so cheap.

[00:20:17] So I think those bouts of outperformance will continue but by and last people are looking at long term money which they can invest for 20 years and forget. I think India will provide that environment and I expect a lot of flows at some point to come to India which with current account being close to zero and lot of flows coming in, that is the environment I am talking about when currency can appreciate quite significantly. Absolutely.

[00:20:40] You did touch upon a lot of points but every single time I hear you say that if we were to go to 8-9% growth. So what is that driver again because I'll tell you, there are a lot of people who say China did this, China did that, why can't India do this? So what do you think China did exceedingly well which we were not able to do or which is causing a hindrance right now and if we clear 1-2-3 points then there's a great chance that we may perform as good as China did in the last 2-3 decades.

[00:21:09] So at the very high level China is an autocratic economy. True. It's a top down economy where the top man says something it happens. India is a democratic economy and the good thing or the bad thing about democracy is for everything there are checks and balances. That was it. You take two steps forward and you have to take one step back. 100%. So while it has its advantages but it also slows down growth which is fair, understandable.

[00:21:35] But having said that, our current demographics are so strong. We have good stable political economy. The fundamentals have never been better. I think we should probably try and accelerate infrastructure creation which is happening. I would say India is currently witnessing a number of revolutions. Infrastructure is one of them. I would just want it to be a little faster. Digital is certainly one of them. There is a tourism revolution that is happening.

[00:22:04] India has always been a great IT digital kind of a place and we are seeing Adha, UPA, all of that is happening and the world is taking notice. There is a great start up ecosystem. I think that is again a very very important piece in our overall story. So one is clearly focus on manufacturing. If you have to do really big things, please do it. I am saying you have to give people the confidence that come here, we will take care of you. See some of these so called policy flip-flops also a little disruptive.

[00:22:34] From an investor standpoint, I think we should try and not do that. Correct. Which happens in India time to time. I think that we should certainly stop. We should create an environment where people feel excited about putting money in India and make a decent return on investment. Sometimes making money is not seen as good, making too much money. But I think it is a part of growing up. Yeah, absolutely.

[00:22:59] I think if the economy is looking at becoming a 10-20 trillion economy in a few decades, I think we have to be okay with that. Let the private sector take its own course. Let the private sector make money, get its due share of return on investment and kind of reduce the policy flip-flops. I think that will probably help us in good stead. Clearly, focus on manufacturing is one area which we have to do. Correct.

[00:23:27] What China did differently also was its financial markets did not develop too much. Whereas physical markets developed very well. I think in India it is the reverse. Our financial markets are very, very developed. But the physical or the real economy is still not that advanced. I think with all of this, with infrastructure creation and inviting people to set up big shops in India, I think we should also skill our manpower appropriately. That's one element which is also missing to a large extent.

[00:23:56] I hear from a lot of promoters who say, labor is not a military. True. In a country like India, which has 1.4 billion people, people are not finding skilled labor. I think that is something we have to take care of. And it all has to happen simultaneously and fast. With that, I think while democracy as I said slows down growth but it ensures it is sustainable and robust. So true. So we are talking about GDP at one point. And there are a lot of people who generally don't like India to see grow.

[00:24:26] They will first point out on one point which is GDP per capita. I was about to come to that. Your take on that. Yeah. So I joke around that with our base. Even if… No, they have a question for this. China has a higher GDP per capita. 100%. Why doesn't India have that? So about 30-40 years back, I think India was higher. So China has actually done whatever it has done in the last 30-40 years. Okay. Yeah. So yes, you are right. Our per capita GDP is only about $2500.

[00:24:54] But the interesting thing also is if you look at and do some research, most countries when they cross that 2000-2500 per capita GDP, a hockey stick up, growth kind, environment takes off. I am hoping this will happen for India also. We have seen for so many countries, China, Mexico, Brazil, all of them actually took off after the per capita GDP crossed 2000-2500 dollars. We are in that stage. Okay. So I do expect that to happen. But also it reminds us that our base is very low. Correct. So to grow here is very easy.

[00:25:24] So I keep joking around with people that if policymakers go for sleep also, India will grow at 5%. So 6.5-7% is not great. While it's looking good relatively, I will urge policymakers to be a little more bold and target a 9-10% GDP growth. If we target 9-10%, we will come to 8-8.5%. So that is something that my aspiration is. So we actually touched based on so many points.

[00:25:52] But then again, if I were to take you back to the very first question where we started, that there are so many things going around the world. So if a retail individual investor were to track at least two-three points, be it from an Indian perspective or from a global perspective, which top three would they be? I think if one has to ensure that individual investors' risk management is in place, I think one of the two or three important things that they should watch for is how the US bond yields reacting.

[00:26:22] If they go up above 5% and stay there, then there is some disruption coming. Gold which has done exceedingly well over the last couple of years at least, I would say if it continues to keep going up, which I do expect it to keep going up. But from a six month perspective, let's say it's currently about $3,300. If it goes to $4,000, it is also suggesting there is something wrong happening. Gold is a safe haven.

[00:26:52] People get, the asset class becomes attractive when there is some concerns. There are concerns, there is uncertainty, there is volatility or paper is losing value and generally commodity prices. I am saying these are things which will ensure that the inflationary environment is now upon us. So that is something which one has to be a little careful about, the movement of currencies.

[00:27:14] Of course, geopolitics is something which is happening in front of our eyes and unfortunately it has become a part of something we have to live with. So these are some of the things from a global perspective which one should keep in mind. While US markets did see a little bit of, equity markets see a little bit of correction in the last few months and now they have bounced back and now close to their previous eyes.

[00:27:37] I think a big correction happening there is also something which will disrupt the global financial markets. Do you see that happening? At some point yes. Yes. May not be immediately but if you ask me will it happen in the next 12 months, I would say yes. I will bet on that. Wow. If I have to actually wager, I would say next 12 months this will happen. There will be a US led financial market correction because of number of countries.

[00:28:04] Of course valuation is one factor and the fact that if the bond yields continue to behave the way they are behaving, some of the other asset classes behave that way. I think one bout of correction is necessary for the global markets. And when US sneezes everybody catches cold. We may see some correction happening in our markets also but I think India is largely insulated from all the stuff that is happening globally including tariffs. I would say yes, we will find our way from tariffs also. Correct.

[00:28:33] Because net-net we are positioned in such a way that people want to partner more with India than be against it. So we are in that sweet spot. In every life there is a period when most things tend to go well. Correct. And there are phases when most things tend to go bad. True. So we are in that environment. So I think Indian retail investors should not worry too much. They should follow their own rule based, their goal based investing and they should be disciplined enough. Keep on.

[00:28:59] So my recommendation to them would be basically follow your one, the most important thing is save money. No, no. So I will come to that personal investing part. Before that, you mentioned that there is a great chance that you see that US could correct in the next, let's say one year, one and a half year, whatever, 12 months, whatever.

[00:29:19] But then in that case, because a lot of my viewers also asked me that should we be doing a lot of geographical diversification because a majority of the Indians would park 100% of their money in India. But then would it make sense if they were to park it abroad, may it be in the US or maybe some other countries? Would you suggest that? 100%. Yes. I think all sorts of diversification are important, including geographic. So while there should be a core India portfolio, but from a satellite perspective, you should be exposed to the global markets also.

[00:29:49] So I would say for the last 10 years, US was a great market to have that so called diversification approach. As I said, 12 months back, 9 months back, China was a great market to park your money for the short term, maybe get the correction sorted out. For example, the P ratios in China had come in single digits. Absolutely. So I think that was a little too much. So there are opportunities to make easy money in China in the last 6-9 months. Similarly, those kinds of opportunities will keep coming from time to time in various markets. Correct.

[00:30:17] So it could be Europe sometime, it could be Japan sometime, it could be some other market sometime. So I think what people should try and do is have a core portfolio in India, but also look for some diversification. Satellite portfolio. Satellite portfolios in different parts. Correct. You could play different markets at different points in time. You don't have to be stuck to one market. Absolutely. So that obviously helps because there are periods when a particular market goes through some sort of, one can say time correction or things don't happen for some time.

[00:30:44] It's good to have a little bit of diversification because you also want your portfolio to get the maximum return, scalability by having these diversifications. And it's always good to be diversified whether it's geographic or asset classes. Correct. So one has to keep in mind that it could be different asset classes also from a geographic. For example, if somebody has been doing too much of fixed income, could look at equities. Somebody has been doing too much of equities, please look at gold, silver. I think their time has come.

[00:31:13] Obviously they have been doing well, but I think there is a far greater returns to be made in some of those asset classes. Especially silver has, I mean, it has seen a big downward movement for last so many years and now we can see. So it's been the most hated asset classes in some sense, but I think the time is changing. So I have personally been very bullish on gold and silver. I think gold has done well. Yeah. You never know silver's time is coming. Like RCB won it after 18 years, similarly silver could be the next winner. And when it moves, it moves.

[00:31:43] Yeah, it does. So I think that time is coming. Perfect. So there are a lot of investors who have also joined this party of investing post-COVID. So what would be your suggestion to them when they were to make their own portfolio? How should they plan it? Yeah. So what COVID did to a lot of Indian individual investors was in some sense, they made them very aware. They had time when they were locked down during COVID period.

[00:32:08] I think they understood the importance of financial markets, equity markets. I think what in the last five years, retail investors have become very knowledgeable and insightful. Absolutely. I think their level of awareness is great. I see people asking some very, very intelligent questions. They have understood that the fact that they had been using only one or two asset classes in the past may not work. And equity is a great inflation hedge asset class for them to make wealth over the long term. Absolutely.

[00:32:37] So in the past, Indians were essentially real estate and gold. True. Then it became from a financial markets perspective, it was largely bank deposits. I think we are seeing that trend change over the last few years, physical to financial and even within financial from bank deposits to more market linked. That trend is happening. And as I said, people have become very, very aware. And it's very good to see that level of insight in retail investors.

[00:33:03] And they are parking large part of whatever they can say in equity markets and mutual funds and possibly doing the right thing, especially for youngsters. What it actually did also was it encouraged some speculative trading. And our derivative volumes went through the roof. True, true. I think that is something which people should avoid. That is a risky segment. Absolutely. It's good to have a portfolio for the long term, good qualities, stocks and ride it.

[00:33:31] But also keep in mind your asset allocation. I think that is very important based on your return expectations as well as risk appetite. Got it. And people tend to suggest a particular percentage for everybody if you are 20 years, invest this much. Those are broad guidelines. I think every individual investor is unique and the asset allocation should also be reasonably personal depending on his own risk appetite and return expectations.

[00:33:55] But let me ask you a question that assuming that majority of the people, let's say 70-80% would be into like a medium risk taker category and decent enough income, above average income is what I can say, middle class or higher middle class category. In that case, what could be a portfolio diversification according to you based on asset classes? And does insurance play a very important role while building the entire portfolio? I was about to come to that before you asked me to stop. Okay.

[00:34:22] So from an asset allocation perspective, and I am assuming the person is not very old. So I think 50-60% at least should be in equities. So let's say 30 years or 40 years. 40 years, 50-60% could be in equities. Okay. I am assuming 5-10% would be in real estate because they will have a house and so and so forth. There will be some fixed income from a safety perspective.

[00:34:49] I would suggest at least 10% in today's day and time, at least in gold silver. These are assets from a wealth creation perspective. But also important is insurance. Insurance provides that protective layer around you and the financial security for your family members if something was to happen. Correct. Something untoward was to happen. And insurance could be life, health, general, take care of your assets, to have your family secure financially if something was to happen to you, disability.

[00:35:18] So insurance is very important for you to have a peace of mind. Correct. So ideally speaking, have a portfolio which is there for your wealth creation and preservation both. And also have insurance around your entire life so that you can sleep peacefully during the night. Correct. So I keep telling to people that in financial markets, in financial security, it's impossible to avoid the storm. Absolutely. The storms will come. Absolutely.

[00:35:48] But have a portfolio which can dance in that range. Amazing. Amazing. So. You mentioned that you should have a life insurance, health insurance, general insurance. Any specific, I mean, would you just tell us about which different types of insurances and… That's very important. So insurance companies offer different kinds of products. So if you are not a very high risk taker and you are looking for guaranteed returns, so we have something called non-participating products. Okay. Which is you get guarantees for the longer term.

[00:36:17] For example, the longer term could mean 20, 30, 40 years. Okay. There's no other financial product which gives you long term guarantees. Bank deposits are generally 5 years, at best 10 years. Okay. At best. 5-7 years is the highest for bank. That's the only guarantee you get for only 5 years. Insurance companies on the other hand could be 20, 30, 40 years guarantee. Which is quite good if somebody is looking for that wealth preservation objective. Well, one is wealth accumulation and wealth maximization. There's also wealth preservation.

[00:36:44] So I think a 6-7 percent guarantee over the 20 year period is a great wealth preservation tool. So that's a non-part segment. Then we have the unit link. Unit link products are like mutual funds. They are like… They invest in the market depending on what kind of funds you choose. Okay. And over the years what has happened is the regulatory reforms, the competition, etc. The unit link products have become very efficient. And from a customer standpoint they are very, very attractive. Okay. And I keep getting asked this question from time to time.

[00:37:13] Are mutual funds better or ULIP is better? I said it depends on again what your horizon is. For example, in the unit link product typically there's a life insurance element also. Correct. Which kind of increases the cost to some extent. Mutual funds charge essentially the FMC. But the FMC is higher than what typically a unit link product charges. Okay. So generally speaking if you have a long term horizon of 10 years and beyond, ULIP would turn out to be better than mutual fund because of lower FMC.

[00:37:41] So you're charging 1-1.2 percent on that corpus after 10 years is far lower than charging 2 percent on that corpus maybe 10 years later. So if your horizon is long term which I would suggest your horizon should be long term, unit link products are a very efficient mode of investment. What people don't realize is when you switch between mutual funds, let's say you're moving from equity to debt, you end up paying tax at every incidence. Absolutely. In a unit link product you get free switches. For example our company offers 12 free switches a year.

[00:38:10] So you could move between debt, equity several times in a year also and not pay any taxes during the life of the policy. So that's very tax efficient. Okay. So I think a lot of people don't appreciate that fact. So some of the more astute ones they keep doing the switches from time to time. When equity markets are overheated they won't move money from equity to debt, not pay any tax. When market is correct, again move back to equity, not pay any tax. Oh. So that's unit link products and I think they've become far more efficient compared to what they were 10-15 years ago.

[00:38:40] So it's an element which should be taken into account and tax obviously provides that additional booster. Absolutely. I mean because every single time like you mentioned right, if someone were to go from equity to debt or from debt to equity whatever is the taxation that ranging from right from 12.5% to your… To 40%. Tax lab. Yeah. So that's going to be pretty high. So that actually tilts the advantage quite in favor of unit link products.

[00:39:04] And then the third element is the participating products where you participate in the business of that segment. For example, you are like a shareholder of that fund. So if the company makes money, more money on let's say mortality, you get a share of that. If the company makes more returns on investment, you get a share of that. So these are the three different types of insurance products which people can use for wealth accumulation, wealth preservation or being a hybrid kind.

[00:39:31] So I think there are opportunities available along with that while our company does only life insurance but there are important elements of general insurance also medical insurance also health insurance which people should certainly take into account. I think one thing all of us will realize is health is one segment which is very very unpredictable. Absolutely. Anything can happen to anybody at any point in time. So you should be adequately covered on that side as well. Amazing. So I think that insurance provides that protection and stability and frees up your mind from all of these worries and anxieties.

[00:40:01] Correct. I think that is equally important if not more important than wealth accumulation. Absolutely. So whoever is watching this podcast, I think, I mean as per my channel statistics, majority of them are going to be in the age bracket of 25 to 45. Okay. But there are still going to be few people who would be below 25 who may be just starting out. It might be their first salary, their first job, whatever. Any suggestions to them that how should they be starting their investing journey? So depending on whatever asset class they are comfortable with, I think what they should

[00:40:29] do is have a discipline of at least saving something every month. Even if it is a small amount, get into that habit of saving regularly and investing somewhere. Correct. They could choose to have a mutual fund, they could choose to buy an insurance policy. If they like gold, silver they can buy that. But get into the habit of doing this and read as much as you can. There is so much knowledge available and the financial markets always keep coming up with new environments. There is so much more to learn.

[00:40:57] So I think people should do a lot more in terms of understanding or improving their financial literacy. So one, say for sure, keep investing wherever. I think ideally there should be, a youngster should be investing more in equities but let's say you are not fully comfortable, then go to an expert. Go to a mutual fund, go to a professional advisor, but keep doing it. And over time when your salary goes up, you will realize that you can save more and you know much more and you can decide on that asset allocation a lot better when you have already

[00:41:26] experienced some of it. So just start. I think starting is more important and continuing rather than which asset class at that particular point in time. I would say just get into that habit of saving and investing. Absolutely. And then you can decide over time. I am saying you are a youngster, you can make those asset allocation decisions later also. But get into that habit of saving. Absolutely. Absolutely. Prashant, I must say that when we started this entire conversation, I will tell something to my audiences that before we started, Prashant was like, you know, ithni derh bait ke baat

[00:41:55] karna is going to be so difficult because he is a kind of a person who would just walk around and speak. But I mean you made this look so easy, so interesting that… I would have still preferred walking around but that's okay. Amazing. But I am sure everyone learnt so much, even me sitting here, I learnt so much from you. Thank you for that. I really enjoyed this conversation as well. Thank you so much. Thank you, Rachana. Thank you. So, we will keep on coming up with such interesting podcasts. We will try and get him more often on our channel as well. So, thank you.

[00:42:25] Thank you everyone for this patient listening and I will see you in the next one. Until then, take care. Chai Hind and bye bye. Thank you.