Stay calm, say fund managers

Don't get spooked by ongoing volatility, they advise; prospects for equities & debt both good, though short-term pain possible

Fund managers say they're trying to soothe investor nerves with the stock markets seeing a surge in volatility, due to events at home and abroad.

On Wednesday, the BSE exchange's benchmark Sensex plunged 1,600 points (six per cent) before trimming losses. Thursday saw a near two per cent move up; it ended one per cent higher. On Friday, a decline of 2.7 per cent as the Sensex plunged about 700 points and the National Stock Exchange's Nifty50 breached the 8,300 mark.

More important, many frontline individual stocks are seeing sharp gains and losses on a daily basis, amid news flow such as the US elections, the demonetisation move at home and a sharp rise in US bond yields. Tata Motors, Tata Steel, ICICI Bank and State Bank of India have seen rises and falls of more than five per cent. The Sensex has lost 1,100 points or four per cent in November.

So, money managers are being bombarded for advice on whether to stay put or take money off the table. Their uniform message to investors is to remain unperturbed by the spike in volatility and to instead use steep falls, as on Wednesday and Friday, as buying opportunities.

"In the near term, there will be volatility. Investors need not panic. They should stay invested and use the corrections as opportunities to purchase additional units. Due to the demonetising of Rs 500 and Rs 1,000 currency notes, in the near term there will be a slowdown in consumption which will be reflected in the numbers next month. We have to see how long this impact remains," said Sunil Singhania, chief investment officer, equities, Reliance Nippon Mutual Fund.

Fund managers have also advised investors to look at fixed income products to make the most out of the demonetisation move. Says S Naren, CIO at ICICI Prudential MF: "Demonetisation has improved the chance of an interest rate cut to earlier than expected. It will lead to money coming back into the banking system. There is a possibility of much lower yields in the medium term. We recommend investors invest in fixed income immediately, as returns are expected to be front-ended."

On equity investment, he said, "We are now more positive on our equity outlook for the next two-three years and recommend investors consider spreading their lump-sum investments over the next few weeks across large-cap, multi-cap and infrastructure funds."

According to Prashant Jain, CIO of HDFC MF: "Investors should simply divide their financial wealth in two parts. One is risk capital which can be kept aside for five years or longer and on which an investor can tolerate volatility. This should be invested in three to five diversified equity funds that have a record of outperforming the markets over multiple cycles. After this, an investor simply needs to be patient. The other part is safe capital - that portion on which an investor does not want to have volatility. This should be invested in one or more of the many fixed income options."

The past 30-odd months has seen the equity segment in MFs gaining a historic size, with total assets under management reaching nearly Rs 5.25 lakh crore. The sector has added nearly 10 million equity accounts in this period, with monthly systematic investment plans reaching Rs 3,500 crore, from Rs 900 crore earlier.