How to invest in a volatile stock market amid liquidity fears, political uncertainty

Liquidity fears and political uncertainties have prevented the Indian stock market from participating in the global rally, says Aruna Giri N, Founder of TrustLine Holdings.

How to invest in a volatile stock market amid liquidity fears, political uncertainty

While emerging markets across the globe have posted a robust performance in 2019 so far, the Indian stock market has largely underperformed. Liquidity fears and political uncertainties have prevented the Indian stock market from participating in the global rally. Recent liquidity fears in the broader NBFC space have dampened investor sentiment, leading to hazy outlook in the short-term for broader markets in India, says Aruna Giri N Founder of TrustLine Holdings. 

Sushruth Sunder of FE Online recently interviewed Aruna Giri N, CEO & Fund Manager, TrustLine Holdings who shares his outlook on the stock market; equity mutual fund inflows; SIP strategy for investors and factors likely to drive stock market performance going forward. Here are edited excerpts: 

The stock markets remain volatile despite the recent Budget SOPs and RBI rate cut. What is your near-term outlook on the stock markets?

There is an interesting divergence between emerging markets and India’s performance, especially in the broader markets. The year 2019 started off with a hope for India. Emerging markets took cues from easing tensions on trade war between China and US, falling treasury yields, softening crude on surging supplies amid slowing growth and, above all from prospects of weakening dollar, to chart out a promising recovery in their equities and currencies. Notably, the MSCI Emerging Markets index has returned over 7% this calendar year on renewed flows.  Broader markets in India are not as lucky, as small and midcap index  has slumped over 7%, implying a 14%+ underperformance against its Emerging Markets peers. This underperformance is primarily on account of renewed fears on the liquidity in the broader NBFC space leading to hazy outlook in the short-term for broader markets.

What factors would drive the stock markets going forward? Which sectors are likely to do well in the medium term?

Nature of challenges is changing for the markets. Last year, it was more of emerging market outflows that dictated the downtrend, though it got aggravated by ILFS misadventures. This year, though the cloud has started to clear for emerging markets, India could not participate in the broader emerging market rally because of ongoing challenges in the domestic front (liquidity fears and political uncertainties). This underperformance will get corrected over time once the news-flow improves on the NBFC liquidity front and fears recede on the pledged shares and balance sheet leverage in some select sectors; more so, when markets regain confidence on the stronger earnings growth outlook for the coming years. With broader markets bleeding, it is stock-pickers market. With value emerging across the board, pay-off from the bottom-up approach looks very promising.

What would your firm’s new Alternate Investment Fund focus on? Is there any minimum investment?

Our newly launched Intrinsic Deep Alpha AIF is a unique fund that is focused on the micro-cap space (sub 500cr market cap universe). It aims at early-stage investing in the listed space by focusing on early investment in small companies in promising high growth sectors, when they are in their infancy, thus having potential to deliver exceptional returns when they scale up. Companies that are on-boarding from SME platform to main exchanges will form the key stock universe for the fund. The fund will work to capitalize on the huge potential this space offers in the future on the return-risk curve, positioned closer to PE fund, much ahead of PMS. Hence, it is structured on similar lines to PE fund with 5 year lock-in.

The other interesting aspect of this fund is that we have structured the tenure of the fund in such a way to capitalize on the reoccurring five-year market cycles with an aim to achieve returns-maximization. In terms of investment size, it comes with the minimum ticket size of 1 Cr as stipulated by SEBI AIF regulations.

What advice would you like to give to retail investors investing through SIPs?

Retail investors have to understand that returns from equity as an asset class, while, will outperform in the long-run, its returns will continue to be non-linear with bouts of volatility. One should stay invested and add if possible through SIP during volatile times to get the best out of the market cycles.

(ArunaGiri N is the Founder CEO & Fund Manager at TrustLine Holdings. Views expressed in the article are his own. Please consult your financial advisor before making any investment related decision)

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First published on: 25-02-2019 at 12:44 IST