BS BFSI Summit: MF CIOs flag market risks, stress need for diversification

BS BFSI Summit: Certain pockets may present risks, but the broader market is not in bubble territory, say leading mutual fund CIOs. They also highlight the need for diversified investment portfolios

A panel of leading mutual fund chief investment officers (CIOs) gathered to discuss current market conditions on Day 2 of the Business Standard BFSI Summit on Thursday, November 7. The discussion on "Is the market in a bubble zone?" revealed a cautious optimism among panellists, who agreed that while some parts of the market are overheated, the broader outlook for Indian markets remains positive.

 

"The trouble with the bubble is that you will know it only after it bursts," said Sailesh Raj Bhan, chief investment officer, Nippon India Mutual Fund. He expressed concern about overvaluations in certain market segments and pointed to the speculative risk as new investors enter with high expectations.

 

Bhan added that "nothing is cheap in the equity markets today," emphasising the importance of cautious stock selection amid high valuations. He observed that if earnings growth does not pick up soon, the markets could face challenges.

 

 

 Foreign investments and market dynamics 

Ashish Gupta, CIO, Axis Mutual Fund, highlighted the mixed investment climate, noting that while there has been some recent correction, nearly 40-45 per cent of companies underperformed in the second quarter. He acknowledged "pockets of value and pockets of bubble," indicating potential risks in certain overvalued areas.

 

Discussing foreign portfolio investors (FPIs), Gupta explained that while FPI stake has decreased as domestic investors' holdings rise, India remains an attractive destination for foreign capital. He assured that "as long as your current account deficit is small and restrained, funds will continue to come in."

 

Earnings growth and market fairness

 

Mahesh Patil, CIO, Aditya Birla Sun Life Mutual Fund, opined that Indian markets, particularly the Nifty index, remain in a fair valuation zone. However, Patil advised caution in small- and mid-cap stocks, which have seen significant rallies.

 

He noted that, while earnings growth has slowed from 20 per cent to single digits, he expects normalisation soon, with strong government spending and a potential rebound in consumption.

 

Debt investments: An attractive alternative?

 

Rajeev Radhakrishnan, CIO, SBI Mutual Fund, urged investors to consider diversifying with high-grade debt investments, which he described as offering "quite attractive" returns even on a one-year basis.

 

He highlighted the visibility of real returns, noting that debt offers a stable and rewarding alternative for investors seeking predictable outcomes. According to Radhakrishnan, portfolio diversification remains crucial, with each asset class serving a valuable role in balancing risk.

 

Small caps and cautionary optimism

 

Anish Tawakley, co-CIO, ICICI Prudential Mutual Fund, noted that he manages both large-cap and small-cap funds. He suggested that while the broader market is not in bubble territory, certain small-cap stocks may be overvalued.

 

"If stocks of specific companies fall 15 per cent and people sell, then that is a bubble zone," he remarked, cautioning investors to stay vigilant with companies making overly optimistic projections. On the topic of FPIs, he expressed confidence that India's restrained current account deficit would continue to attract foreign investment.

 

Need for diversification

 

Mahendra Kumar Jajoo, CIO, Mirae Asset Investment Managers, reflected on the expanding reach of mutual funds in India, underscoring a growing optimism in the equity market. He argued that a balanced portfolio, incorporating both equity and debt, is essential for long-term stability.

 

Using a cricket analogy, Jajoo explained that, like India’s national cricket team, a diversified portfolio can become "undefeatable." He remarked, "There is space for every asset class," pointing out that debt mutual funds are now competitive with fixed deposits.

 

The consensus among the panellists was clear: while certain pockets of the market may present risks, disciplined investment strategies and diversified portfolios remain crucial in today's market environment.

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