‘This is not the time to take more risk’

Markets have corrected by around 4% this month. Should investors see this as an opportunity?

This is not the time to take more risk, and definitely not the time to seek higher returns by being aggressive. This is the time to ask why did I start investing? What is my financial goal? What is my asset allocation and am I in line with that?

We find that many people have raised their equity exposure quite significantly either because they have put new money into the market or their equity portfolio due to mark-to-market has gone up and therefore, it is higher than their original target. We have been saying for the last year that go back to your original target. At these valuations, in some sense, your current returns include a component of what would have been your future returns.

Have you changed the weight of equity in your hybrid funds, given the changing market dynamics?

Firstly, we find hybrids to be a very good solution in this market. There are different kinds of hybrid funds. In aggressive hybrids, there is fixed asset allocation. But when it comes to dynamically managed or balanced advantage funds, the equity allocation can be anywhere between 30-90% based on the strategy.

In our aggressive hybrid, we will not cut equity allocation. But in our balanced advantage fund, when we launched it in July 2023, equity exposure was 65%. Today, it has come down to about 45-47%. 

Q – The earnings growth in April-June was below expectations. Even the results for September so far have been underwhelming. Is that a risk for markets?

Between 2019 and 2024, earnings approximately doubled for Nifty 50 companies. Having said that, the last quarter was not very great. The forecast for September quarter was itself not very great. But many of the numbers which have come, many of the pre-number guidance that companies have put out, there is no strong recovery. Looking at all of that, there is some risk to the earnings estimates for FY25. 

Q. There has been a lot of buzz around retail investors losing money in F&O. Where do you draw the line between investor protection and investor freedom?

Investor protection comes down to solving problems like transparency and integrity of the marketplace and corporate governance of those institutions and of the companies which are listed. 

What we have heard the regulator say is that speculation is important because it provides liquidity in the market. But if there are things which are speculative, but do not serve any clear economic purpose, then certainly they should be reviewed.

I think very clearly one of the things that the regulator found out is about the trading on the last day of expiry in options. Who is this creating value for? Is it creating something which the market needs? Or is it just something people find to be a very easy and convenient way to speculate? It may be creating risks for the entire system. 

Investor protection does not mean preventing investors from making losses. It is protecting the integrity of the financial institutions and corporate governance.

The MF inflow data for the first half of FY25 shows that nearly 50% of equity inflows went into sectoral/thematic funds. What is your view on that?

For any investor, there needs to be a broadly diversified portfolio as a base. On top of that, you can sprinkle some sectoral/thematic investments. But that itself cannot become your base.

Overall, the flows have been really good. People are doing SIPs. However, data shows cancellation rates on SIPs are 45-50% and very few investors stay more than 2 years. We as an industry have achieved a lot in the last 10 years to educate investors on the benefit of thinking long-term. But the journey is incomplete because people are terminating SIPs and not showing willingness to hold for more than 1-2 years. There is some momentum-seeking element in their behaviour. It’s fair. But we will have to continue educating.