Despite a highly volatile market in the past year Shailesh Raj Bhan, President and CIO (equities), Nippon India Mutual Fund says selling by foreign institutional investors has helped domestic players to buy stocks at reasonable prices. Bhan tells Kushan Shah and Joydeep Ghosh that if an extreme event like oil prices hitting $125 /barrel triggers a sharp correction, core investors may start to sell. Excerpts:
Have the volatile markets made investment decisions more difficult?
The last two years were tougher because it was difficult to buy at the right prices. With prices correcting by 20-30% in many segments, partly due to FPI selling, valuations are looking more sensible. Of course, some investors who entered the markets in the last three years or high net worth individuals who need capital for their businesses might be more affected due to this correction.
And there will also be investors who are unwilling to book losses currently may sell when markets rebound, leading to a churn. The only worry is that if there is a sharp correction due to an extreme event like oil prices reaching $125 per barrel, then we may see core investors starting to sell.
How is this correction different from the one in say 2008-2009?
The basic difference this time is that it comes after a period of flat prices for over a year. So, there was no euphoria before the correction. Also, corporate balance sheets are not leveraged and the government’s balance sheet is fine. So, if the conflict is resolved soon, the second half of the FY27 could be positive.
A longer conflict that goes on for two more months could see market volatility through the fiscal. And then, we will have to see whether things improve next year.
Has the fund house increased its cash holdings?
We don’t believe in holding cash beyond 5% in most schemes, as it adds to another layer of decision making. We do not aim to eliminate the market risk as it is a part of equity investment. Instead, the focus is on doing relatively better than the benchmarks through bottom-up stock selection.
No one can time the markets consistently, so, it is better to prioritise investment in good businesses at attractive valuations and reduce complexity in investment decisions.
How do you see valuations in the current market?
Valuations are much better now than in the last 2-3 years. The markets fell by over 10% in March after staying flat for two years, which is why we are seeing attractive prices. This is not the time to say there is too much risk but to use this correction to accumulate stocks for the next few years.
Investors can also advance SIPs, doubling or even trebling them this year and not investing in the next two years; that will given them rich returns in the later years. We are currently buying two kinds of companies: high-quality, world-class businesses available at sensible prices and good companies which have seen a sharp decline and are available at reasonable valuations.
Do you see the FIIs coming back after the recent sell off?
Currently, there are concerns about oil prices and valuations due to which foreign investors are allocating funds to other markets. Investors should see this as an opportunity to buy good businesses at attractive prices.
How do you see Sebi’s move to allow higher allocation to commodities and investment in REITs for equity funds?
We do not want to change the core allocation of the equity schemes. So, we may use this for a small part of our portfolio, like parking funds in REITs instead of cash. The risk profile and character of the fund have to be consistent.