Equities Versus Bonds Over Next Three Years — Maneesh Dangi Evaluates Risk

The traditional bet on equities may not yield the expected returns, while credit markets offer a more promising opportunity going forward, says Maneesh Dangi, founder and chief executive officer at Mosaic Asset Management.

Dangi, in an interview with NDTV Profit, highlighted a shift in focus of investment strategies, noting that equities might underperform relative to bonds in the near future. "The juiciest part of the market right now is credit," he holds.

Historically, equities have delivered an average premium of about 5% over bonds. However, this premium could shrink significantly in the next three years due to increased volatility in the stock market, Dangi believes.

"A decent credit fund will be returning about the same premium over bond returns," he said.

With profits expected to be below market expectations and corporate capital expenditure failing to kick in, equities could face tough times ahead according to Dangi.

Conversely, the credit market stands out as the most attractive investment opportunity. Indian balance sheets have been cleaned up substantially over the past 15 years, resulting in some of the lowest leverage ratios in four decades.

This deleveraging trend makes credit a safer bet compared to equities. Given that we are in a mid-to-late cycle, credit-based investments are likely to provide stable returns with relatively lower risk, said Dangi.

While the outlook for credit seems positive, there are some significant concerns to keep in mind, said Dangi. "We should be having a bigger concern over deflation, not inflation," he stated.

The global economic landscape, including China's overcapacity issues, suggests that deflation might be a more pressing issue than inflation in the near future, according to him.

Additionally, Dangi advises caution regarding the current exuberance in manufacturing. "Despite high margins, if corporate capex is not kicking-in, it's a bad new for equity but a good news for credit," he said.