Fund managers often state that it is the time in the market that matters instead of timing. And rightly so! It is also widely believed among financial experts that if one has a disciplined approach to investing then there is no right or wrong time to invest.
In an interview — Mahavir Kaswa, Head of Research, Passive Funds, Motilal Oswal AMC tells MintGenie all this and much more. He also says that the first-time investors — who have never seen such market down moves — can look towards a low volatility strategy which invests in stocks that witness less price volatility.
Edited Excerpts:
As Nifty50 has already declined nearly 15 percent from its peak in October, do you think it is the right time to buy index funds?
Current market volatility is predominantly due to global issues such as inflation, rate hikes, war and elevated oil prices. We, at Motilal Oswal, strongly believe that time in the market matters more than timing the market. If one has a disciplined approach to investing, then there is no right or wrong time to invest.
That said, the current market correction provides a good entry level to investors worried about market valuation earlier. The low-cost index funds and ETFs are easy, economical, and effective investment options to take market exposure.
Are there any particular sectors and themes that you want to recommend to investors, which are likely to do well in the near & medium-term future?
In volatile times like these, investors may look for defensive sectors or strategies such as FMCG, Healthcare or Utilities. For first-time investors who have never seen such market down moves, they can look towards a low volatility strategy which invests in stocks that witness less price volatility. Historically such strategies have done well over the long term.
As mid cap and small cap funds are facing more pressure as compared to their large cap counterparts, should retail investors stick to the latter during the ongoing volatility?
Large caps tend to do relatively well during bear markets, while during a bull market it lags the mid and small caps. But, as I said earlier, an investor should avoid timing the market. Instead, they would be better off taking a ‘Fill it-Shut it- Forget it’ approach. They can do so by taking exposure to a multi-cap passive fund that covers large mid and small-cap stocks such as Nifty 500, and then sit back and do nothing.
Last month, SEBI released a set of guidelines in a bid to promote liquidity in passive funds. Do you think it will contribute towards making these funds popular among retail investors?
I think this is a step in the right direction by SEBI. The revised regulation mandates that all ETF transactions lower than ₹25 crores shall be done on the exchange. This is expected to significantly improve the ETF liquidity and greatly help investors with tighter spreads.
RBI has already raised repo rates by 90 bps in past two months with chances of further rate hikes. What impact, according to you, will inflation and RBI’s rate hikes have on the financial markets in the immediate future?
One may see market reaction only during uncertainty; let’s take a case in point. The first-rate hike was announced in an off-cycle policy meet, which caught the markets off guard. But around the second-rate hike, the markets had already priced in the policy action and did not react. Markets have always been forward-looking and will continue being so; that said, we feel most of the rate hike seems to be priced in.
Indian currency has fallen steeply in past few weeks and has touched record lows recently. Do you think this will lead to better performance of mutual funds which invest in overseas funds?
Historically rupee has depreciated against US dollar . This has resulted in nearly 3- 4 percent additional returns to Indian investors in rupee terms. Moreover, the current fall in rupee against US dollar has helped cushion the losses from overseas investments for Indian investors.
Is there any other interesting observation which you may want to share?
Factor investing has been gaining traction in India. Over the past two years, the asset under management for factor strategies has grown more than 10x to ₹7,400 crore.
Although this is still nascent, if we had to draw parallels from developed markets, we could say this could grow very big.
