While key equity indices started moving up from mid-June this year, the rally in markets became more prominent in September raising hopes of further gains. Even as stocks of larger companies gained, smaller stocks also rebounded sharply as they were also beaten down to low levels.
However, with global uncertainty once again raising its head, markets have lost about 3 per cent from their October peaks raising questions about the sustainability of the rally. Given the looming events of the US fiscal cliff, continuing crisis in Euro zone and weak economic environment in India, the road ahead is still not clear.
Even as the retail participation continues to be dismal, the going for investors hasn’t been easy.
So, amid such a scenario what should retail investors do when considering investments in the equity markets via mutual fund route? Should they be looking at the mid-cap funds – which can earn them better returns amid a rally or play sector specific stories through sectoral funds or for that matter stick with large-cap diversified funds?
| TOP LARGE CAP FUNDS | ||
| Scheme Name | 1 Year | 3 Years |
| UTI Wealth Builder Fund - Series II | 18.30 | 11.90 |
| ICICI Pru. Focused Bluechip Equity Fund | 16.00 | 11.30 |
| Franklin India Bluechip | 12.50 | 9.30 |
| Tata Pure Equity Fund | 16.60 | 8.50 |
| Religare AGILE Fund | 20.00 | 8.20 |
| Birla Sun Life Top 100 Fund | 17.80 | 8.20 |
| ICICI Prudential Top 100 Fund | 20.60 | 8.10 |
| HDFC Top 200 | 13.70 | 8.10 |
| Edelweiss D.G.E Top 100 Fund | 17.50 | 7.50 |
| Principal Large Cap Fund | 16.00 | 7.10 |
| Data pertains to large cap growth funds Source: ICRA Online * Compounded Annualised (Point to Point) returns in % as on September 28, 2012 | ||
Experts advise investors to go safe in their picks as far as category of funds is concerned. They maintain that equity investments need to be a continuous process through systematic investments and not putting a lump sum at one go. And when it comes to funds, they are unanimous on advising investments in large-cap fund category.
“Uncertainty is still persisting. Investors should stay away from high-beta stocks. I would prefer that investors opt for large-cap funds over mid-cap ones as size, quality, safety and performance do matter in uncertain times. Let some certainty come in then only buying mid-cap story will make sense as one should remember mid-cap counters fall easily in trouble times,” says Akshay Gupta, chief executive officer (CEO) of Peerless Mutual Fund.
Agrees Anand Shah, chief investment officer (CIO) at BNP Paribas Mutual Fund. According to him whatever rally had to happen has happened signalling his clear priority to go for large-cap funds.
Sanjay Sachdev, CEO of Tata Mutual Fund, says, “Investors should not be opportunistic and not aim to make quick bucks. They need to be disciplined in their investments for longer period and not driven by momentum driven rally. If one thinks that considering the market rally it’s good to get into mid-cap and book profits as and when it happens, it’s better to invest directly into the markets.”
For now, industry experts are cautious about the year-to-date (YTD) steep returns – the S&P CNX Nifty is up about 22 per cent. And they want investors not to get carried away with the momentum and play safe.
Dhirendra Kumar, CEO of Value Research, says, “Though mid-caps tend to do better during rallies, one should understand that despite 20 per cent gains this year, fundamentally nothing has changed. Mid-cap funds are good and hold promise but investors need to be careful and keep a watch on their portfolios.” He, however, did not share the high optimism of market participants on the expected rally in stock markets.
