‘Market kya lagta hai?’

In the current market, MFDs and advisors should avoid adding risk; instead, they should lower the risk in the investment portfolio of their clients, believes Sailesh Raj Bhan, CIO, Equity Investments, Nippon India Mutual Fund.

Bhan said, “MFDs and advisors should look to not overpay for growth. They should  diversify investments sensibly, prioritize growth at reasonable valuations and look for good quality inflows over high inflows.”

The CIO said that MFDs and advisors can build a stronger relationship with clients for the next 5-10 years if they give them this reality.

Bhan was speaking at the recent  Cafemutual Confluence 2024.

Here are some key highlights of the session:

• The last few years have seen perhaps one of the strongest bull markets in two decades

• In the current market scenario, incorrect allocation can make an investor’s life difficult for the next 3-4 years

• Any investor who starts his journey now should know that nothing is easy from here on as he is starting on a high

• Next 3 years of equity markets will be different from the last 3. So, it is important to have modest return expectations

• Current inflows are overshadowing the near-term fundamentals. However, the fundamentals over medium and long term are good and valuations are capturing a good part of them

• India’s global market cap has increased to 4.6% from about 2% a few years ago but this does not guarantee that this growth will continue at a similar pace

• Today, inflows in equity are tremendous. Investors are ignoring any advice for a staggered or risk-diversified approach

• Current narrative is that there won’t be a correction in the market if inflows continue at this rate and vice versa

• It is important to know that only inflows cannot continue to drive valuations

• Return expectation of investor is very high as a lot of investors are new and have not yet seen a downturn in the market

• Investors have to be prepared to stay invested for 2-3 years after a market correction. This is where the role of advisors becomes important

• Midcaps are trading at 50% premium compared to their 10-year average valuations

• A few years ago, blue-chip funds were being bought at high valuations but they have not met investor expectations

• Offline retail business is actually growing at a faster rate than online retail

• It can take up to 10 years to recover from overpaying at 70-90X valuations

• There is no easy money in the present market

• The good narrative surrounding the Indian markets implies that investors are paying well for their investments

• Value of a company has speculation and intrinsic value. Today, speculative value is much higher than the underlying business value, which has increased the risk of investment

• Earnings are weak currently and they will drive the returns in the future more than valuations

• MFDs/Advisors should also lower return expectations for the next 2 years as losses are expected in some categories of equity schemes

• They should also invest only with 3 year+ time horizon and look to regularly rebalance their equity allocations

• As far as risk diversifications go, this is the time to lower risk and not increase it

• Risks are relatively lower in large cap among market segments.

You can watch the complete session by clicking here.