’Adopt wait and watch strategy, deploy funds slowly on market dips, says Seemant Shukla of JM Financial Mutual Fund
Investors advised to explore staggered investment approach, equity flows are going towards mid-cap and small-cap categories, said Seemant Shukla of JM Financial Mutual Fund.
Indian market benchmark indices have been in the red for the past six sessions. On Friday, Nifty 50 and Sensex ended with significant gains primarily because of robust buying and global positive cues.
Investors lost almost ₹17.8 lakh crore over the course of six sessions as the total market capitalisation of the companies listed on the BSE dropped from ₹323.8 lakh crore on Tuesday, October 17, to approximately ₹306 lakh crore. The market is being held back by a number of headwinds.
In light of the present geopolitical environment, difficulties and slowdown in developed markets, and the upcoming election in India, Seemant Shukla, Chief Business Officer, JM Financial Mutual Fund feels that people should consider a phased investment strategy with a longer time horizon.
In an interview with Mint, Shukla also spoke at a length about investor preferences and fund categories from the previous year, asset allocation in light of the present market conditions, and tactics to draw in more Systematic Investment Plans (SIP) clients. Edited excerpts:
1 . What are your views on the current market sentiment? Would you advise investors to hold onto their investments?
Given the current geopolitical landscape, challenges and slow down in developed markets, and an impending election in India , investors may feel anxious which is palpable. It is suggested that individuals explore a staggered investment approach with a longer time horizon. Despite global uncertainties, the Indian economy is relatively outperforming other emerging and developed markets, supporting a bullish long-term view for India.
Adopting a "wait and watch" strategy or keeping dry powder on hand and deploying funds gradually during market dips can be advantageous. Regardless of the chosen strategy, it is essential for investors to perceive equities as a long-term investment.
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2. How has the asset management industry evolved in terms of investor preferences and fund categories over the past year? Are there any particular trends that you have observed?
Investors have become more savvy, and a noteworthy development on the retail front is the substantial contribution to growth from Beyond Top 30 (B30) cities and towns. The overall folios from these areas now make up over 40% (Source AMFI). This positive trend indicates a broadening geographical base in retail participation, whether through SIPs or retail folios.
In terms of asset class trends, equity and hybrid AUM together constitute approximately 53% of the total AUM. The individual segment, encompassing Retail, HNI, and UNHI, holds a larger share of the AUM pie compared to the Institutional segment, which bodes well for the industry.
Noteworthy is the larger allocation of equity flows towards Mid-cap, Small-cap, and Multi/Flexicap categories in recent past. Additionally, on the NFOs front, there is traction in Multi-Asset, Multicap funds, and Thematic funds, showcasing diverse investment interests.
3. Following the October meeting, the RBI kept the repo rate and policy stance unchanged. Is there a possibility that the RBI could lower interest rates soon? What are your views?
Our perspective at the fund house is leaning towards a "long pause," primarily driven by the projected Consumer Price Index (CPI) figures and resilient growth environment. We are closely monitoring oil prices, geopolitical developments, global rates environment and its impact on currencies apart from domestic inflation and growth dynamics.
4. How has the distribution landscape changed in terms of channels and platforms for fund distribution? Are there emerging trends in digital distribution methods?
The digital ecosystem has undeniably extended its reach and convenience to the remotest corners of the country. Today, it's not just the growth of Business-to-Consumer digital platforms that has gain ground. The adoption of digital technologies by Mutual Fund Distributors (MFD) and their transformation into a Phygital (physical + digital) mode have significantly enhanced transactional ease and communication, leading to increased investor engagement & comfort and ease. While the percentage distribution may have changed, visible growth is evident across all distribution channels.
5. What, in your opinion, should be the portfolio's asset allocation given the current scenario of the market?
Asset allocation is essentially tailored to individual needs, so a one-size-fits-all approach is not suitable. However, as a general guideline, the emphasis should be on safeguarding returns generated in equity, especially in mid and small-cap segments, which have seen recent volatility, there is saying Volatility kills compounding – so if you can reduce the drawdown it help to compound faster. Eg. On ₹100, correction of 20% need the upside movement 25% to reach the base of ₹100.
For fresh allocations, considering Large Cap or Hybrid categories may be prudent. Alternatively, exploring Flexicap or Multicap funds could be a strategic move, especially in market segments with higher valuations.
6. SIPs have gained popularity among retail investors. What strategies are in place to attract more SIP investors in India?
The success story of Systematic Investment Plans (SIP) in India mirrors the achievements of the country's FMCG sector, particularly the "Sachet theory" seen in products like Clinic Plus Re1/- sachets. In the FMCG sector, widespread distribution at an affordable cost paved the way for consumer comfort and increased affordability, creating a target segment beyond the initial soap market. Similarly, SIPs establish a disciplined and frictionless investment approach. As investors become accustomed to the process, the automatic nature of SIPs encourages comfort, allowing them to explore lump-sum investments as well.
Over the last decade, the monthly value of SIPs has surged from 1300-1500 crores to an impressive 14000-15000 crores at the gross level (Source AMFI/ Industry). SIP-driven folios now contribute almost half of the total folios. The digital ecosystem, payment methods, and platforms like MFU, NSE, BSE, and RTA platforms have played a crucial role in expanding this reach. The reach issue has been broadly addressed, especially with a large number of Indians having bank accounts. However, the key to sustained success lies in raising awareness in smaller towns and villages, fostering comfort with Mutual Funds as an investment offering. While industry and regulatory campaigns have increased awareness, there is still much ground to cover.
The digital ecosystem, payment systems, and platforms have facilitated extensive reach, aided by distributors utilising market infrastructure platforms such as MFU, NSE, BSE, RTA platforms, and others. This has & will substantially address the reach challenge, given the widespread presence of bank accounts among the Indian populace. The critical factor for success now lies in raising awareness in smaller towns and villages and fostering a sense of comfort regarding Mutual Funds as a viable investment option. While industry and regulatory campaigns have been effective in increasing awareness I am sure continuous effort will soon give much larger impact on penetration.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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