MF managers' advice patience as market continues to crack

Mutual fund managers advise investors to remain patient and believe in long-term growth story but to avoid rural-focused sectors

Investors are a worried lot as benchmark indices have corrected nearly five per cent in the past week and most foreign brokerages have begun to scale back their year-end Sensex targets. Despite the turbulence, India’s top mutual fund (MF) managers are advising investors to remain patient and believe in the long-term growth story.

Fund managers, however, don’t rule out further pain in the near-term till the economic and earnings growth recovery gathers pace. Investors will be better off avoiding sectors such as public sector banks, two-wheelers, tractor manufacturers, rural lending companies and consumer staples, they say.

 

S Naren, chief investment officer (CIO), ICICI Prudential Mutual Fund, says, “The approach for existing investors should be to follow the asset allocation principle in their portfolio depending on their risk profile. We believe cyclical revival will eventually happen and investors should gradually invest for cyclical revival in the economy.”

According to him, sectors such as financial and infrastructure are likely to do well in the long-term. But he advises caution on consumer staples, which are valued high right now.

India Meteorological Department’s forecasts of below-normal monsoon for the year have spooked the market and, therefore, market experts advise reducing exposure to companies dependent on the rural economy.

 

Mahesh Patil, co-chief investment officer (equities) at Birla Sun Life Mutual Fund, says, “Due to a combination of lower MSP (minimum support price), lower wage growth, reduced NREGA spending and inclement weather, the rural economy has come under severe strain. We would be cautious on two-wheelers, tractors, consumer staples, rural lending companies and PSU banks.”

Already, some of the stocks in these sectors are down between 30 per cent and 50 per cent from the 2015 highs. The benchmark indices, too, are down over 10 per cent from their highs. While on a year-to-date basis, the Sensex and Nifty are down around three per cent each.

“The quantum of returns this year may be less than last year, but will still be greater than any other investable asset classes. We advise participation in the equity markets through systematic investment plans (SIPs) and use every correction for investment,” says Patil.

Agrees Sunil Singhania, CIO (equities), Reliance Mutual Fund. “While admitting there is a category of stocks that have gone up much beyond their fundamental, the current correction has also meant that good potential stocks are now at reasonable valuations for an investor. As far as the country is concerned, we believe the building blocks are in place, and it is a matter of time before it starts getting reflected in overall growth,” he says.

Prashant Jain, CIO, HDFC Mutual Fund, believes the Indian market is in a transition phase now. But he continues to feel equities are the best asset class for investors.

“Equities are a great compounding machine. India had and has great growth prospects. To benefit from this, an investor should assess and allocate one’s risk capital to equities,” he says.

According to Jain, asset allocation is the key to successful investing. “Surprisingly, it is also the most neglected as most of the attention is focused on timing, security selection and moving across funds. Up to 90 per cent of returns and wealth over long periods are driven by asset allocation only and not by security selection or timing,” he said. EXPERTSPEAK

"Asset allocation is the key to successful investing. Up to 90 per cent of returns  and wealth over long periods are driven by asset allocation only and not by security selection or timing."

Prashant Jain,
CIO, HDFC Mutual Fund

"We believe cyclical revival will eventually happen and investors should gradually invest for cyclical revival in the economy."

S Naren,
CIO, ICICI Prudential Mutual Fund

"The current correction has also meant that good potential stocks are now at reasonable valuations for an investor."

Sunil Singhania,
CIO (Equities), Reliance Mutual Fund

"The rural economy has come under severe strain. We would be cautious on two- wheelers, tractors, consumer staples, rural lending companies and PSU banks."

Mahesh Patil,
co-CIO (Equities), Birla Sun Life Mutual Fund