Satish Ramanathan, CIO-equity, JM Financial Mutual Fund believes that the current market situation is very fluid. This is because the impact of war in West Asia is still not completely known, thereby increasing the uncertainty in the markets.
He believes the impact of this conflict will be at three levels: the immediate impact which is currently seen on the availability of fuel, a secondary impact on shopkeepers and vendors to make and sell their products. A possible third level impact could be on the inability of such businesses to repay their loans due to rapid decline in revenues. The consumption basket could also get impacted to a significant degree.
Conflict-Driven Economic Risk
In order to avoid a serious impact on the domestic and global economy, the issues related to energy line have to be resolved at a reasonable price. Hence, the global markets may continue to be volatile until a resolution is reached which provides future visibility to the markets.
While the valuations in the Indian markets are still higher relative to other emerging markets, Ramanathan believes that they have come down in the last year or so, enabling more investment by domestic and foreign investors. He adds that FPIs have also been impacted by the post-tax returns which have seen a hit due to depreciation in the Indian rupee in the past one year, adding to their mark-to-market losses.
Ramanathan’s portfolios typically have around 80:20 mix of strategic and tactical allocation. A believer in the growth style of investment, he believes that India may continue to remain a growth market in the future due to under-penetration in many aspects of the economy.
Active Management
At a time, when majority of the active equity funds are struggling to beat their benchmarks, he asserted that there is scope for these funds to generate attractive returns. He says that to achieve such returns, it is necessary to have a long-term horizon, giving time to a differentiated portfolio to play out. He does not see passive funds as a competition and says that they have their own unique nuances which add to the diversity of options available to investors.