Following the US sovereign rating downgrade by Standard & Poor’s, Indian markets tumbled during the day. Cafemutual spoke to mutual fund experts to get clarity on what lies ahead
Today, Asian markets including Indian markets slumped as investors were shaken by the downgrading of the long-term US sovereign rating by rating agency Standard & Poor’s from ‘AAA’ to ‘AA+’. However, the Indian markets regained some ground as European and US markets saw some gains. Finally, the Sensex and Nifty ended the day at 16,990 and 5,119; declining 316 and 93 points.
Analysing the possible impact of this event, Kenneth Andrade, Head - Investments, IDFC Mutual Fund said the only risk that equity markets in India hold is that equities as an overall asset class will get de-rated across the world. Striking a more positive note, he said, “The only thing that helps emerging markets including India is growth and as long as we are growing at 7.5 percent to 8 percent, I don’t think there is any problem for equities in terms of capital preservation.“
In the short run, Kenneth expects that there might be some disturbance but over the long term the markets will bounce back. Finally he advised investors to stick to their asset allocation and increase the equity component significantly over the next 12 years in a staggered manner. “Don’t do it in lump sum but do it over a period of time,” he added.
TP Raman, MD, Sundaram Mutual Fund felt that the US downgrade could lead to slowing down of inflows of hedge funds and FIIs in the near term. Speaking on the investment options, he opined that investors would do well by investing through the SIP route. Also, FMPs and Capital Protection plans would do well, he added.
G Pradeepkumar, CEO, Union KBC Asset Management said this downgrade provides a very good opportunity for the Indian policymakers to push forward its reform agenda. If it happens then Indian economy is expected to outperform the western economies by a significant margin.
Ashu Suyash, Country Head & MD, Fidelity International commented that it is important that equity investors should stay invested for a long term. Empirical evidence proves that equities as an asset class outperform investments in all other asset classes over the long term - in spite of short term volatility or other event driven market conditions.
What should you tell your investors?
US downgrade was largely expected.
Indian markets won’t be impacted in the long term as the Indian growth story holds well. However, there could be impact if FIIs withdraw money from emerging markets like India.
Disciplined investing through SIPs should continue during the period of uncertainty; those with spare cash should invest prudently over different periods.
Short term debt funds are also a good option.
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