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Strategies for equity investors

LiveMint logoLiveMint 17-04-2017 Kayezad E. Adajania

With rising equity valuations in recent times, how should you invest in the equity market going forward? Mint spoke to experts about the investment strategies going forward

Ashish Chadha, a Gurgaon-based mutual fund adviser

Buy sheep, sell deer the saying goes, because sheep is cheap and dear is expensive. Buy fear, sell greed. Let us not get greedy in good times.

Your asset allocation in bad times is your asset allocation in good times and not vice versa. In these times, sensible investors pay down loans, buy a vehicle, take a holiday, create a medical fund and don’t watch their portfolios on the internet. The golden rule in equity investing is this: if you are not willing to lose money, avoid equity. If you are a new investor and haven’t invested in equities till date, you will feel left out. So it’s better to stay away for now or stay underweight on equity. There are several factors that are panning out in the Indian economy—benign interest rates, low commodity prices, loan waivers, public sector unit disinvestment, strong rupee-dollar, global cues on H1B visa-related issues, exports, earnings not improving, superior tax compliance thanks to digitization, GST, and demonetization. Mid-cap or small-cap valuations are stratospheric; large-caps are at lifetime or 52-week highs. These valuations make me queasy. So, don’t switch from debt to equity now. This is probably the worst time to do it. The ideal strategy is to invest in fixed income now and underweight or minimize equities. Or better still, for an old investor, book profits from equities and take a holiday.

Janakiraman R., VP & portfolio manager, Franklin Equity, Franklin Templeton Investments India

The country has a stable government with a growth-oriented economic mindset. After disappointing for the past two years, the elusive earnings growth promises to manifest itself this fiscal. Substantive reforms like GST, Real Estate (Regulation and Development) Act, Direct Benefit Transfer, etc., have already started to kick in.

The above positive observations, relevant for an equity investor, have already led to strong performance by equities. The Indian equity market has delivered attractive returns over the past 3 years. But equity markets tend to price in future expectations. Have these positive developments already been priced in? What kind of returns can a prudent investor expect over the next 3 years?

The answer carries far better clarity if the question is combined with a long-term outlook. India has a very long growth phase ahead of it. This should translate into attractive returns for equity investors. The next 20 years may be as good as the past 20 years. For an Indian household, I cannot think of any other asset class that has the potential to deliver such returns.

But the investors have to be careful about near-term returns. The next 3 years are unlikely to match the past 3 years. The situation calls for a prudent approach. An investor is better off using a systematic approach based on what is appropriate for her risk profile.

S. Naren, executive director and CIO, ICICI Prudential Asset Management Co. Ltd

We are positive on equities from a 2-3-year perspective. For those investors who are currently investing through the systematic investment plan (SIP) route into core equity funds are encouraged to continue with it. In case of an aggressive investor, we would recommend them to opt for infrastructure focused funds. This sector is in a sweet spot thanks to low valuations and expected improvement in earning, thereby providing an opportunity for better risk-adjusted returns. This sector, on a relative basis, has been undershooting the market for nearly a decade.

For those intending to do a lump sum investment can consider dynamic asset allocation funds as such funds have unique features of balancing equity and debt. This ensures that even if equity were to turn very volatile, the debt element would provide the much required cushion, ensuring better investment experience over long term, lending comfort for conservative investors.

We remain positive on large-cap funds over mid- and small-cap funds given the attractive valuations in large-cap space. So an existing investor can continue while a new investor can consider investing in this category. Lastly, we would recommend investor to consult their financial advisors to get their asset allocation mix correct as astute asset allocation is the key to long-term investing success.

A. Balasubramanian, chief executive officer, Birla Sun Life Asset Management Co. Ltd

Equity investment is driven by fundamentals of the economy coupled with hope and optimism. While it is so, underlying investments are driven by business fundamentals of individual companies.

As the equity market touched an all-time high, fundamentals of the economy are getting stronger each year driven by tough reforms as well as inclusive growth focus. The government spending on infrastructure and landmark reforms such as Goods and Services Tax will eventually benefit entire chain of participants such as consumers at large as well as companies producing goods and services.

High growth in compliance standards will propel tax efficiency, ushering promising economic growth in the country. It is therefore imperative that equity investment should be part of every saver’s portfolio in the country.

The quantum of investment can be determined by age, earning power and financial goal. Existing investors should continue their equity investment while rebalancing on the basis of their respective portfolio construct. Systematic investment plans (SIP), fast-track SIP, high-ticket SIP are the best ways to build equity portfolio given that one can never time the market right. There is no right time to enter or exit the market. Only disciplined investing will help investors provision for future needs.

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