Long-term investors should not read too much between the lines of repo rate hikes or even the impact of ongoing Russia-Ukraine war. The mutual funds have consistently given a CAGR return of around 12-13 years in past 10 years, and this trend is likely to continue. As far as current valuations are concerned, they are attractive and investors should invest now, rather than waiting for the markets to get stable.
Remember that stability comes at a price, says Aditya Khemani, Fund Manager, Equities at Motilal Oswal Asset Management Company. He also said the disruptive events in the past such as pandemic should be seen as an aberration and not as a new normal.
Excerpts from the interview:
Markets around the world have been unpredictable. How do you see the impact of Ukraine war and the impact of rising fuel prices?
In short term, there will be problems. But since most of the macro-economic indicators are fine, there won't be a long-term problem. When inflation comes down especially the commodity prices, markets will improve. We are in a transitory phase right now. Such cyclical changes keep happening.
Large cap stocks and IT stocks have become attractive now, and we are closer to bottoming out of market. Overall market outlook looks healthy to me.
How do you see the impact of repo rate hike by the central bank?
The pre-COVID repo rate was 5.1 percent. Then pandemic happened which had catastrophic effect. As of now, the situation is improving, and the rates are expected to come back to normal. Home loan rates can't stay at 6.7 percent forever. They might increase to nearly 7.3 percent. But this will not impact growth in the long run.
Is this the right time to invest in a mutual fund or not?
If seen from a long-term perspective, mutual funds have given a CAGR return of around 12 to 13 percent in past 10 year or so. If investors want to stay invested for at least one-year from now, it is the good time to enter the market. The market correction has already happened. The current level looks attractive.
And if investors want the market to get stable, they should remember that stability comes at a price. The current valuations are attractive. The markets will not wait to factor in the changes. Discounting usually happens much earlier.
What are the key things investors should keep in mind at the time of making investment in mutual fund schemes?
Last five years have been quite tough for the markets. There were several setbacks such as demonetisation, IL&FS crisis, then there was pandemic. Although one can't predict the market accurately, but it is likely that there will be fewer disruptions as we move forward and mutual funds will give a CAGR return of anywhere between 13-14 percent in the long run.
Is there any new trend that you may have noticed in the mutual fund industry?
In last two to three years, international equities have done well. This is why, several funds have launched international schemes. Also, ETF is becoming a big part of the market, drawing a lot of interest from fund houses.