World is volatile, uncertain, complex and ambiguous and we are going through a phase of radical uncertainty. There are decades when nothing happens and weeks where decades happen. We are living in those weeks right now, believes Navneet Munot, CIO, SBI MF.
Speaking at the Cafemutual Confluence 2020 Investment Marathon, Munot said, “The current crisis is unprecedented as we did not anticipate or imagine a health crisis would impact the real economy. Hence, as market participants, we need to be prepared for such unknown situations.”
This is like an era of unprecedented uncertainty where everything is unpredictable. Munot said that till a few years back, we could not visualize that bond lenders would be paying money to buy bonds but now we have worth $15 trillion bond trading at negative yields. Few months back, we could not imagine that even a commodity can trade at negative yield and oil actually settled at a negative price one fine morning.
He said that over the last few months, we have faced a pandemic virus with more than 20 lakh people infected, several weeks of lockdown, biggest slowdown in March quarter, biggest recession but with high inflation, border issue with China, rating downgrade, locust attack, floods and cyclones. “If I were to ask you one year back in August where do you see the market? One would have answered 20-30% lower but the fact is Nifty 50, Sensex and even mid and small caps indices are higher than before. Anybody who ended up predicting right was not smarter but just luckier,” said Munot.
Munot further said that the market cycles are getting shorter with days. “In February, volatility was at all time low, in March we had one of the worst corrections in the history and within two or three months we had a quarter which is one the best in the history of markets. Things move so fast. Even sector rotations in the last few months shows the pace at which the information is moving. This is because ideas and information move at a speed of light in this hyper connected world. One of the learnings from this crisis is that everything is unpredictable.”
Another key lesson from the pandemic is that it is not important how much you know, what you know, but most important is how you behave, react and control your biases, feels Munot.
“I believe uncertainty and volatility are good for investors as during uncertainty prices fall and securities become cheaper. If you don’t get swayed by volatility, it will favour you.”
He advised investors to diversify their investments across asset classes like equity, fixed income and gold. The importance of a multi asset allocation fund in a portfolio will only go up and will play a bigger role, said Munot.
Further, he advised investors not to time the market, instead, investors should bet on companies having good management that can survive any such crisis and have the ability to reboot and reinvent themselves.
Click here to watch Navneet’s session at Cafemutual Confluence 2020 Investment Marathon.
