In the wake of Russia-Ukraine crisis, global equity markets are under heavy selling pressure. However, the recent selloff is seen as an opportunity by positional investors and various mutual fund houses as the equity market is providing an opportunity to enter at discounted levels. ICICI Prudential Fund managers believe that both Equity Market and Equity Mutual Fund are expected to deliver great returns over the long term. He believes that the current Russo-Ukraine war has provided an opportunity for a long mutual fund investors After the ceasefire in the Russo-Ukraine war, the markets will return strongly.
In conversation with Livemint, Chintan Hariya, Head Products & Strategy, ICICI Prudential Mutual Fund He further explained why he feels that long term equity exposure is better than mid or short term.
Edited excerpt:
The positional holding of FIIs in Nifty 500 has come down from 2012 levels. Is it suitable for lumpsum equity mutual fund investment?
Given recent geopolitical uncertainty and possible rate hike measures by the US Fed and other global central banks in the future, we remain cautious in the short to medium term. However, from a longer term perspective, we are very positive on account of various reform initiatives like RERA, GST, Insolvency and Bankruptcy Code, China+1 strategy, reduction in corporate tax rate etc. Infrastructure-related initiatives were outlined over the next several years. Furthermore, unlike the US, India’s corporate profits remain low in GDP and therefore in terms of cycles, India is far from peaking in terms of both corporate profits and valuations. Owing to these factors, we believe that the Indian business cycle is bound to improve further.
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Despite equity valuations correcting from record highs, it is not as cheap as it was during March 2020. Hence we believe that minimizing one’s investments through SIPS or investing lumpsum in balanced leverage and multi-asset strategies is the best way.
In the wake of the Russo-Ukraine war, is it appropriate to increase large-cap equity exposure?
FPIs have been net sellers of Indian equities in the last six months and have sold $15.41 billion so far. This is the longest FPI selling streak since 2008. It is a known fact that FPIs largely invest in large cap/blue chip stocks. Hence, after this sell-off, the position of large caps looks better than mid and small caps.
What is your suggestion to a new equity mutual fund investor in this equity market influenced by geopolitics?
In our view, equity markets may perform well in the long term but we remain cautious on short to medium term prospects. Instead of focusing on a single asset class such as equities; Investors should look at a combination of other assets including debt, gold, real estate etc.
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Hence, investors can consider investing in scheme categories like Dynamic Asset Allocation, Multi Asset. The advantage of investing in such categories is that investors get exposure to multiple asset classes in a single fund. For equity investments only, investors can start SIPs in categories like value, flexicap to name a few.
In the current crisis in Ukraine, gold has emerged as a safe haven for investors. Is it wise to increase exposure to paper gold and electronic gold at the expense of debt mutual funds?
Gold and debt are two different asset classes, each with its own distinct role in the portfolio. While gold acts as a hedge against inflation and volatility in financial assets, loans provide much needed stability to the portfolio. Therefore, do not invest in one asset class over another. Investors looking to increase their allocation towards gold in their portfolio can consider investing in gold ETFs or gold funds of funds. The general principle is that one can allocate ~10-15% of their portfolio to gold. The optimal allocation to one’s portfolio can be decided in consultation with a financial advisor.
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We believe that Gold ETFs offer certain unique advantages. Firstly, an investor need not worry about storage and theft as it is held in demat form, the cost of acquisition is low, with no making charges and other related expenses. There is complete flexibility in buying and selling gold ETFs when they are listed on the exchanges. One can transact during business hours. Also, one need not wait to deposit enough amount to start investing as investors can start SIPs as low as Rs. 1,000 every month. This will enable investors to collect units of gold over time and build on their portfolio allocation.
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