‘Older investors need to be cautiously optimistic of market rallies’

The recently released annual report of the Association of Mutual Funds of India (AMFI) showed that 60% of the people aged 25 to 44 were investing in equity mutual funds and this share increased from 36% in 2020.

The increased risk-taking tendencies can be confirmed by the reduced interest in debt securities in this age group. This trend is contrary to the street wisdom that younger investors are more risk taking. Experts say that a combination of increasing popularity of investing in markets and the post COVID-19 bull rally were the reasons behind the shifting preferences of this age group. The optimism was seen despite a correction in September 2024. “Investors are not panicking and that is a positive development” said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services Ltd.

Mr. Vijayakumar also said that ‘recent bias’ contributed to this increasing share of older investors in equity mutual funds. While he maintained that high frequency indicators like the purchasing managers index and GST filings showed healthy macroeconomic situation, investors may have to be cautiously optimistic.

“It is difficult to justify a price to earnings ratio of 20-21 in a market where the earnings of corporate India grow at 5-6%. Market is of the opinion that earnings growth will pick up. But the market is richly valued, “ he said. A ‘richly valued’ market means that the stocks are valued at the right price and there is no room for a further increase in value. Mr. Vijayakumar said that richly-valued markets can correct in response to unexpected events. He further added that present fundamentals do not support a further rally to occur.