Time To Reassess Overall Portfolio

The markets are at an all-time high and have surpassed the levels achieved pre-lockdown. This has helped most investors recoup their losses due to the deep correction we saw in March. We believe that it is an expected investor behaviour, during deep correction and subsequent reversal, to book profits and reduce their allocation to equity as an asset class. Investors will look to re-allocate across other asset classes including equity prudently and in a systematic way. We cannot ignore the deep impact of the current situation on jobs, businesses and household income. Investors will possibly wait to regain confidence in their incomes and business prospects before allocating more aggressively into equities.

2. Do you think more profit booking is expected with the market rally?

Yes. We think that is to be expected. Although, we do think that there is a possibility of re-allocation to winning sectors and portfolios too. Investors and advisors are spending time focussing on investment processes and adding more diversification to portfolios. While the past few months have seen outflows at the industry level, we have been consistently positive about net flow on equity, month on month with the best month so far being November. Of course, this is also to do with the fact that we have delivered consistently good performance across our domestic equity funds and our international Fund of Funds.

3.What is your outlook for equity markets in 2021?

We are entering the year with heightened expectations from corporate India, improvement in macro economy and continued flows from Foreign Institutional Investors (FIIs). While the performance of corporate India in recent times has been heartening, as they seem to be gaining at the cost of small businesses, this is a worry for overall economic growth. So, our outlook is positive for corporate India as earnings are expected to accelerate. 

Corporate sector is gaining market share from unorganised players, given the advantages like - cost leaders, efficient and have lower cost of capital. But we are cautious on macro economy as overall growth can be subdued. Similarly, one has to be worried about flows from FIIs. Right now, there is a shift happening from the US and developed markets to emerging markets, we are clearly benefitting from this trend. Though we expect India to garner higher flows over long term, these flows can swing wildly in the short term and impact equity markets. So, we are cautiously optimistic on equity markets outlook for 2021.

4. What should be the course of action for the equity mutual fund investors going ahead, with equity funds witnessing outflows for the fifth month in a row?

The indicator for what investors must do going forward has less to do with outflows and has everything to do with their goals and priorities. We think that equity will remain an integral part of the asset allocation and its more a question of proportion and risk appetite. Periods of deep economic recession have always brought forth innovation across businesses.

We believe that this innovation is best captured in the equity asset class. Selecting good companies that have that growth orientation into our universe is integral to our process and that is our job. Having a good trusted advisor can help investors sieve through available information to select funds that suit their risk profile and asset allocation requirements. We would recommend adding funds that have low portfolio overlap so as to get better diversification. This is a good time to reassess their overall plan and make sure that they have the requisite insurance protection and adequate emergency funds kept aside.