HDFC Mutual Fund’s Chirag Setalvad has shared important tips with the investors of HDFC Flexi Cap Fund on how to navigate the mid-and small-cap space in a volatile market scenario.
HDFC Mutual Fund’s senior fund manager Chirag Setalvad said in a webinar on Wednesday evening that the current condition of the market warrants investors to do “SIPs with scouting of lump sum investment opportunities as and when they appear”. He also shared critical insights into spotting investable opportunities in the mid-and small-cap space.
He described the current market situation as “reasonable” despite the rally in index valuations. Due to the earnings growth, there might still be an opportunity.
However, the problem arises when the “markets are cheap” as the company valuations fall, even though there is growth opportunity. But in reasonable market conditions, like the present one, valuations might not be cheap. . But in an expensive market, neither the valuation nor the earnings growth is available without a significant cost, he noted. Setalvad said in both conditions (cheap and expensive) people face difficulty in investing money.
In a cheap market condition, people face uncertainty due to a lack of clear outlook, as seen during the US prime crisis, Covid-19, etc. But those who had invested in the bottom, these periods proved hugely beneficial as they could reap gains when the markets bounced back.
Likewise, expensive markets too face the same issue and people face difficulties. Setalvad advised investors to continue with SIPs and invest a lump sum amount when the market offers an opportunity.
Setalvad believes that investments should target “growth at a reasonable price since the market is a bit expensive and stock specific approach is the way to navigate the current market.”
He explains said that currently the mid-cap sector is expensive by 15 per cent, while large-cap by 10 per cent.
Regarding the current risks in the Indian market, Setalvad said that rising interest rates, fluctuating commodity prices, and geopolitical tensions are key threats in the short term that could lead to higher volatility. However, the “market returns could be in line with nominal gross domestic product (GDP) growth over the medium term,” added Setalvad.
Setalvad also emphasized that the “size of the fund does not impact the returns of the fund.”
Citing his experience with investors of HDFC Flexi-cap Fund, Setalvad explained that how people missed out the wealth creation journey due to their behaviour.
Setalvad said that about 99.5 per cent of investors left the fund midway. With an infographic, he elucidated that if a person had invested Rs. 1 lakh in January 1995, he would have made close to Rs. 1 crore by January 2022. But that did not happen as there were only a few investors who stayed invested.
Setalvad stressed that people should stay invested to reap maximum returns.