With more volatility likely, investors should stick to large-caps, BAFs

Indian equity markets have seen sharp corrections in the past few trading sessions. Concerns over the spread of Omicron, coupled with high oil prices and hawkish stance by global central bankers, might lead to greater volatility in the days to come.

Mutual fund players observe that even after the recent fall in Indian equity markets, valuations remain slightly above the historical average. They say investors should still not invest at ‘one-go’ in markets and continue instead with their asset allocation strategy.

Nilesh Shah, managing director of Kotak Mahindra Asset Management Company (AMC), says, “The market today is grappling with some concerns. We believe these are transitory in nature. Obviously, a lot will depend upon how the events pan out. If the spread of Omicron results in a lockdown, there will be more correction in the markets. Else, markets have a good chance to recover from the current levels.”

On Monday, the Sensex ended the day at 55,822.01 — down 1,189.73 points, or 2.09 per cent. In the past one week, the S&P BSE Sensex has been down 6.4 per cent. In the past one year, it has generated returns of nearly 19 per cent.

Market participants believe that concerns still linger in the markets and investors should continue to have higher weighting towards large-cap funds. In the past one year, large-cap funds on average have delivered returns of 26 per cent, while mid-cap and small-cap funds have given higher returns of 43.5 per cent and 61.41 per cent, respectively, reveals the data from Value Research.

G Pradeepkumar, chief executive officer, Union AMC, says, “Just because the markets have fallen, investors should not put money at one go; they should spread out over three to six months. Forging ahead, markets are likely to remain volatile and investors should continue with their systematic investment plans and look at asset allocation products like balanced advantage funds (BAFs).”

From the time when equity markets were on the rise, many risk-averse investors started investing in BAFs. In such products, fund managers take active calls on investing in either debt or equity, depending upon the prevailing market conditions.

This category of funds has been a huge success since it attracts risk-averse investors. The average assets under management of BAFs in November stood at Rs 1.67 trillion — up from Rs 1.09 trillion in March. As a category, BAFs has given average returns of 15.03 per cent in the past one year.