The market has scaled all-time high today. We asked some prominent chief investment officers of mutual funds for their advice.
Sankaran Naren, CIO, ICICI Prudential AMC
We believe that we are in the midst of a good economic cycle. However, markets have gone up much faster than the change in economic cycle. We believe Price to Earnings for the markets looks expensive but Price to Book Value and market cap to GDP ratio are above average but not significantly higher than average. So, the combination of the three valuation metrics suggests that investors should invest in Dynamic Asset Allocation Funds. We would recommend investors to consult their financial advisors to get their asset allocation mix correct as astute asset allocation is the key to long term investing success.
Sunil Singhania, CIO-Equities, Reliance Mutual Fund
The markets being at all time high is attributed to the great macro conditions in Indian economy. Be it rupee strengthening or oil prices or expectations of a great monsoon. Along with the market, the economy is also growing. The macros have never been better for India. See, the markets will always either be overvalued or undervalued in the near term. Having said that I would maintain that the markets touching all time high doesn't make it overvalued.
Our view is that there is definitely overvaluation in some segments of the market, but that is not true for the overall market. The market might look a little expensive, compared to what we have seen in the last 10 years average, but they are not exorbitant.
Investors should always be prepared for a near term 3-4 per cent correction at any point of time. But we are not expecting a very big fall from here. For a retail investor, SIP is the best thing to do. Staggering your investments is always a good idea. Be cautious, and don't invest because someone else is investing or getting good returns.
Rajeev Thakkar, CIO, PPFAS Mutual Fund
Liquidity is ample and it is fuelling new highs both in India and globally. Given that returns from other asset classes like gold and real estate are low, more investors are investing in equities. Valuations are at an above average level. Investors should continue with their regular monthly investments as per their asset allocation. The whole purpose of it is not to time the market.
Investors should not expect the past rally to be reflected exactly in the future. Invetsors expect extra returns, especially when the past returns have been very high. One should mark down the future returns. It is not recommended to change the asset allocation and the investors should stick with their existing plan.
Rajat Jain, CIO, Principal Mutual Fund
Stock markets are driven by two to three factors. Firstly, there has been a very strong flow of funds from both domestic and international investors. Domestic investors are driven by the fact that post demonetisation a lot of money came in the banking system which was earning a low yield. Investors started looking at alternative assets. Post US elections, there was a sense that infrastructure and emerging markets will do well. Money has come in emerging market category within which India stands out due to its high GDP growth and the upcoming reforms like GST.
India is amongst the countries with highest GDP growth rate in the world. Also, the earnings growth rate in the last few years have not been that great, there is a expectation that it will improve this year.
Valuations are definitely not cheap as compared to historical valuations. But we still have not entered the bubble territory.
Investors can continue to invest in equities if you have a horizon of three to five years. Equity is meant for medium to long term. And not for near term investing. The key is to avoid direct equity investing and rather go through the mutual fund route. And the investments should be well diversified. You should probably have a blend of largecap and midcap.
Although midcap valuations are too expensive, especially in the case of midcaps there are too many stocks which are not covered by the index. You may get some cheaper stocks out of the index. Also we have expectations from the infrastructure sector and there are not too many largecap companies in this space. A lot of midcap companies are there.
If you have a time horizon of 3-5 years, remain invested. The prime focusBSE 4.47 % should be on your asset allocation. You may sell a part of equities to rebalance.
Taher Badshah, CIO, Invesco AMC
We believe that there is an opportunity. Optically, the markets are at a new level and on a pure P/E multiple basis, it looks a little expensive. But we are also at a stage where we are coming out of a stage where we haven't seen much earnings growth. GDP growth has happened but corporate earnings growth hasn't happened to the same degree. So, the market looks optically expensive, which is the case near-term, but earnings growth will catch up slowly. Mutual fund investors should focus on long-term investments. Investors should not get carried away by the near-term momentum in the market.
Investors should not stop investing, they should take a staggered approach. An SIP or STP is the best way to invest in any market condition. For new investors, I would say, mutual funds are the best way to enter the markets at this point in time.
The market is expensive but there still are opportunities in different sectors. Market tends to get into such rotations where some sectors become the favourites and others get ignored and sometimes you find value in some of these ignored sectors as well. We are finding incremental opportunities in all the sectors, be it small or mid or large caps. But if you ask me, I think the opportunities are slightly better in largecaps, compared to midcaps.
Harsha Upadhyaya, CIO-Equity, Kotak Mutual Fund
We continue to remain positive on the markets. There are no negative events and at the same time there is expectation of earnings recovery and the liquidity also continues to be quite strong.
We would advise investors to continue investing in equity mutual funds through the SIP route in the regular manner. Investors often try to invest directly in equities even when they are unable to devote the required time. Ideally, they should use mutual funds to build their portfolio rather than investing themselves.
The original article could be seen here.