REITs, InvITs to play larger role in enhancing portfolio returns: Radhavi Deshpande

Radhavi Deshpande, Chief Funding Officer at Kotak Mahindra Life Insurance coverage, believes REITs and InvITs are positioned to assume a extra significant role over time, pushed by steady money flows, enhancing market depth, and their capacity to improve risk-adjusted portfolio returns.

On this chat, she shares her outlook for FY27 in phrases of earnings progress, smallcaps, and sectoral alternatives.

With life insurers inherently working on long-term liabilities, how are you positioning the mounted earnings e book amid uncertainty across the charge cycle and yield curve actions?

Given the long-duration nature of our liabilities, our mounted earnings positioning is anchored in asset-liability matching relatively than tactical charge calls. Whereas the worldwide charge cycle seems nearer to stabilization, home liquidity, fiscal provide dynamics, and inflation trajectory proceed to affect yield curve actions.

We’re subsequently sustaining length aligned with liabilities whereas selectively including unfold property at enticing yields. We proceed to scout for acceptable credit score that meets all our threat standards, together with proportionate credit score and tenor unfold. In a range-bound charge setting, carry and disciplined deployment have a tendency to reward greater than length methods.

How are you evaluating allocations to rising avenues equivalent to REITs, InvITs, and different different property inside the broader asset-liability administration framework?

REITs and InvITs are evaluated as strategic portfolio property relatively than tactical yield enhancers. For long-duration traders like us, these devices supply steady money flows, superior risk-adjusted returns, and diversification away from conventional mounted earnings. Nonetheless, total allocation to these property stays calibrated. We give attention to marquee sponsors, high-quality property, manageable leverage, and steady distributions. Over time, because the ecosystem matures and secondary market depth improves, these property can play an excellent larger role in enhancing portfolio returns.

How do you assess the present market assemble in phrases of valuation consolation versus earnings visibility?

The market at present displays selective consolation relatively than broad-based valuation ease. Massive caps supply comparatively higher alignment between earnings, visibility, and multiples, supported by sturdy stability sheets and money circulation resilience. In distinction, sure segments of mid and small caps are pricing in optimistic multiyear progress assumptions.

India’s structural progress story stays intact, however liquidity-driven re-rating has largely performed out up to now. The subsequent leg of returns ought to be earnings-led. We subsequently stay constructive but selective, favoring firms with pricing energy, capital effectivity, and earnings sturdiness over thematic or narrative-driven performs.

Company earnings progress has proven indicators of enchancment. Do you assume full earnings restoration will happen from FY27 onwards?

We’re seeing early indicators of normalization after a interval of margin compression and uneven demand restoration. That stated, a full-fledged earnings restoration from FY27 onwards will rely on sustained personal capex, continued monetary sector power, and exterior demand stability. Our base case is for a progressive and broadening restoration relatively than a pointy surge. Corporations that invested via the slowdown and maintained stability sheet self-discipline are finest positioned to lead in this section.

Do you anticipate earnings progress broadening throughout sectors, or remaining concentrated in choose themes equivalent to financials, manufacturing, or consumption?

Financials stay structurally well-placed given credit score penetration, asset high quality normalization, and powerful capitalization. Manufacturing and industrials proceed to profit from provide chain diversification and authorities capex momentum. Nonetheless, for markets to ship sustained returns, earnings should broaden past these pillars. Consumption restoration, particularly in rural and mass segments, might be essential for true breadth. The subsequent section is probably going to reward dispersion and bottom-up choice. Our positioning displays that stability.

Small- and mid-cap shares have seen vital participation from retail traders over the previous few years. How are you evaluating risk-reward in this section, particularly from the lens of capital preservation for policyholders? Do you assume small caps will bounce again in FY27?

From the policyholder perspective, capital preservation and risk-adjusted return stay paramount. Whereas small and mid-caps have delivered sturdy returns, dispersion inside the section is extraordinarily excessive. Stability sheet high quality, governance requirements, and earnings sustainability range extensively. We subsequently stay extremely selective. A broad-based bounce in FY27 would require sustained earnings supply and supportive liquidity circumstances. The subsequent section is probably going to reward high quality and money circulation visibility relatively than momentum-driven participation.

Which market segments are you bullish on primarily based on each earnings progress and valuation consolation?

Massive-cap financials proceed to supply a compelling mix of earnings visibility and cheap valuations. Choose industrial and manufacturing firms with sturdy order books and working leverage additionally stand out.

Inside consumption, alternatives are rising the place rural restoration and premiumization intersect, although we stay valuation-conscious. Total, our strategy stays constant: constructive on India’s medium-term progress trajectory, however disciplined on valuation and high quality. The approaching section is probably going to be earnings-driven and selective relatively than broad-based and liquidity-led.