Riding the wave of India's bull rally by investing across assets

India is flourishing. The economy is booming, and the country stands as an oasis in the global economic desert. Our dreams of becoming the third-largest economy are seemingly within reach, and optimism is in the air. But with opportunity comes responsibility.

July 2023 alone, the equity market witnessed a whirlpool of activities. Small cap funds saw a massive inflow of ₹4171 crores out of total inflow of ₹7226 crores in equity scheme, while large cap and flexi cap funds experienced outflow.

As per AMFI data close to 80 lakh new folios were created in smallcap funds since March 2021 till July 2023, which is 22% of total folios created during this period, indicating a significant shift in investor behaviour.

Is this maturity or just a rush towards past success? It is encouraging to see an infusion into smallcap funds, but some signals are alarming. Many stocks look expensive and far beyond their fundamentals. Warren Buffet once said, "Be fearful when others are greedy, and greedy when others are fearful." Is this a time to heed his advice? Things might turn sour if investments are driven solely by past returns.

The Indian market is rallying, but caution is key. Peter Lynch's famous words resonate here: "The rearview mirror is always clearer than the windshield." While the rear view can offer insight, we must keep our eyes on the road ahead.

What should be the course for investors? SIPs (Systematic Investment Plans) for the long term, spanning 10-15 years or more, continue to be the way forward. Among equity funds the focus on large cap oriented portfolios might be wise at this juncture.

Multi-asset allocation funds, which invest across equity, debt, and commodities can be a prudent path. These funds may offer lower volatility in a roller coaster market, allowing investors to navigate uncertain times without much fear of a sudden crash. These funds offer a good option for those who are averse to volatility and whose patience might get tested in case of a significant market fall.

Investing in small cap funds, managed by experienced fund managers, is good. But putting all your money in one fund category may not be prudent. As the saying goes, "Don't put all your eggs in one basket." During the covid fall of 23rd March 2020, Nifty Smallcap 100 fell 47% in comparison to 32% in Nifty in 1 year. Long term SIPs remain the best way to participate in these funds without going overboard.

The way forward: India's growth story is captivating, but wise investing requires a balance of enthusiasm and caution. Let's invest with vision, not just by glancing at the rearview mirror. Investing with a seat belt on will ensure you enjoy the long ride without getting into an accident.

Happy investing, India, and may your journey be both thrilling and rewarding.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

Biraja Prasad Tripathy, Head of Products at Kotak Mahindra Asset Management Company