The prolonged bear run in the stock markets is not new. These markets have seen worse, though the behaviour of some investors continues to remain the same. Panic is in the air as they see the value of their portfolios going down at an exponential rate. Krishna Kanhaiya, Director & CEO, Mirae Asset Financial Services (India) Pvt. Ltdtalks to MintGenie about the age-old wisdom in relying on dividend-paying stocks and how this is the correct time to invest in an index fund.
Q. Equities have been witnessing strong bouts of volatility of late. While volatility is expected to continue, should investors add more dividend-paying stocks to ensure a relatively stable income?
With high volatility, though in short term, dividend-paying stocks look more attractive, I feel volatility is good for long-term investors. There has been a healthy correction in the equity market. I feel this is a chance to invest in some fundamentally strong companies at attractive valuations that will give you a better chance to make money in the long term.
Q. Inflation, rate hikes and their impact on the economic growth may result in a prolonged bearish phase in the market. Should investors, unaware of stock valuations and selection, opt for parking money in index funds?
Investors who are unaware of stock valuations and selection but looking to participate in equity should invest through mutual funds, irrespective of market conditions. If one is not able to identify a good fund manager, he/ she should invest in index funds/ ETFs. Based on the prescribed rule, the index keeps only the best companies by rebalancing from time to time. Investment in ETFs is a good option for someone who does not understand stock valuations/ selection.
Q. Currently, what should be the strategy of stock market investors? Should they buy, hold or trim their exposure to equities?
When you say investors, I assume we are talking about someone who invests with a long-term view. There are many fundamentally strong companies that are available at an attractive valuation. The strategy should be to decide the asset allocation and then stick to it. If the asset allocation of an investor permits investment in equity, I feel the investor should remain invested in equity.
Q. A bull run tends to follow a bear pull. Out of the large-cap, mid-cap and small-cap stocks, which do you think would move up the index quickly?
It’s a well-known fact that when the stock markets do well, mid-cap and small-cap stocks give a better return than large-cap stocks and vice versa. However, there are always some good companies irrespective of the market cap that will do well when the market starts looking up. From the long-term perspective, I think both the banking and IT sectors will see a lot of headwinds and since they carry a heavy weight in the index, they will play a credible role.
