The market correction represents a good opportunity to average out the investments and investors who have held on have generated good long term returns.
The stock market volatility continues and many equity mutual fund investors are a worried lot. The NIFTY 50 has fallen about 25 per cent year-to-date (YTD) even while it has recovered nearly 18 per cent from the lows (9039 levels) it touched on March 23, 2020. However, will the recovery sustain remains to be seen? Going by the recent statement of RBI, for the year as a whole, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant.
In addition to keeping an eye on the development of the vaccine, in the near term, the market may focus on the global cues, US-China relationship, crude oil prices movements and other economic policies and measures that nations take. For a retail mutual fund investor who is saving for the long term, are these developments important to track?
FE Online in an email interview with V. Srivatsa – Executive Vice President & Fund Manager – Equity at UTI AMC finds out the outlook of the stock market, what should investors do now and the set of leaders in the post-COVID-19 environment that the investors might focus on.
What is your outlook on the current market scenario? How should retail investors especially those who have SIPs navigate the volatility?
The equity markets have fallen by around 25 per cent in the last three months led by the after-effects of the pandemic COVID-19, which has derailed the growth of the major economies including Indian and has led the global economy towards recession. Our economy has embarked on a very stringent lockdown which is rated amongst the strictest in the world and this will impact our GDP in a significant manner in the coming quarters.
The government in the last couple of months has announced series of measures both on the fiscal and monetary side to soften the impact of the lockdown especially on the SME enterprises and the migrant labourer’s who are the worst impacted.
The recovery of the economy would largely depend as to how quickly we are able to contain the virus and it is expected that recovery would be staggered over quarters. The equity markets generally are forward-looking and have corrected on the back of likely contraction in the GDP and likely massive degrowth in the earnings in the coming quarters.
On the valuation side, if we take the price to book metric, the Indian markets are attractively valued from long term perspective and the current market is throwing up opportunities in sectors and companies which have generated good returns and which have corrected meaningfully in the last three months.
Regarding the SIP, it has been proved in the past instances of 2008-09 and 2013 that the market correction represents a good opportunity to average out the investments and investors who have held on, have generated very good long term returns.
Should one diversify abroad? Why should an Indian investor consider international investing?
The international funds provide some level of diversification to the investors as the majority of the equity funds in India are exposed to the Indian market and economy risks.
Pharma funds returns have already gone up. Should one consider investing in them now?
At the outset, sector funds have a different risk-reward proposition and should be invested in taking into view the risk profile of the investors. Regarding the pharma sector, the sector is coming out of a prolonged period of slow earnings and falling return ratios and challenging environment in both India and USA which are the key markets for the Industry.
The outlook for both the markets are getting better and companies have also focused on streamlining their operations and repairing the balance sheets and focused on improving the return ratios. Given the defensive nature of the Industry, the sector offers decent growth visibility amongst the major sectors of the markets. The valuations are in line with the long term averages and the sector is expected to show reasonable earnings growth.
What are some of the emerging investment opportunities as consumption-led demand is looking to remain low in the near term? What are those sectors retail investors should consider while investing in MFs?
While investing in the equity markets, one must also take valuations in conjunction with the growth outlook across the sectors. It is true that consumption-related sectors will take a knock in the coming quarters, equally some of the consumption-oriented sectors have corrected meaningfully making them attractively valued from a long term perspective. Amongst the consumption-oriented sectors, we believe that autos and pharma represents a good opportunity in the current markets. We also believe that Information Technology and Utilities also offer good opportunities as they are relatively resilient and valuations are very reasonable for both the sectors.