A correction in global stock markets can lead to a fall in India as well. There is limited visibility on further stimulus in major economies and the reports of a second wave of coronavirus in some countries are making markets nervous," Harshad Chetanwala of MyWealthGrowth.com tells Moneycontrol's Sunil Shankar Matkar in an interview. Edited excerpts:
Q: If a person is around 30, what should be the proportion of equity and debt in their portfolio in the current environment?
The overall asset allocation of any person is very subjective and should be based on the financial goals of that person. Depending on the time horizon of the goals, the right blend of equity and debt allocation is worked for each of these goals. Once the investment for all the goals is mapped and invested, the overall asset allocation any investor will get evolved. For goals of less than 10 years, one can look at a blend of equity and debt investment. For goals with more than 10 years, one should invest only in the equities. The allocation also depends on the risk appetite of the person. For a 30-year old, the allocation in equities can be up to 75 percent and the rest in debt. However, if the 30-year is planning to buy a house in near future, then the allocation in debt should be higher. Hence, asset allocation is highly subjective in nature and it is very difficult to generalise it.
Q: How can someone become a crorepati in five years? What are the investment options that can help achieve the target?
Rs 1 crore in five years is indeed an ambitious target. As the time horizon of five years is not short or long term in nature, a mix of equity and debt is a better way to approach such a target. At present, 65 percent allocation in equities and 35 percent in debt can be invested to achieve this target. Mutual Funds are one of the best ways to invest in equities as well as debt.
If I have to build Rs 1 crore by doing one-time investment at present, I need to invest Rs 65 lakh in the above ratio i.e. Rs 42.27 lakh in equities and rest in debt. In the case of SIP, I will have to start at a SIP of Rs 1.33 lakh per month for 5 years. SIP of Rs 86,500 in equities and rest in debt.
Return assumed for the investment are 10 percent and 7 percent for equities and debt, respectively. Since we have five years to build, a combination of index, largecap, large and midcap funds are a good option to invest in equity funds. One should avoid investing in mid or smallcap funds because of a limited time horizon. On debt funds, one can look at banking and PSU and short-duration funds.
Q: Do you think the market is in a correction mode after the consolidation and the rally seen in the past few months? Is the valuation a reason behind this correction?
On the valuation front, the stock market does look overvalued. The increase in share prices over the last few months is due to excessive global liquidity, there are hardly any fundamental factors supporting this kind of rise in stock prices. Of late, we are seeing some weakness in the market because of global cues, an increase in corona cases around the world and political uncertainty. There is a possibility that this trend may continue for some more time because the market cannot always keep surging on liquidity, stimulus and sentiments.
Q: Should one wait for more correction or is it a good time to buy? When should one start investing in equity via SIP?
Valuations are a concern right now. If the market continues to correct from here, which is quite possible, it will be a good opportunity for those who missed out on investing in March and April or for those who still have some cash to invest in equities.
SIPs can be started at any point and investors should not be worried about market levels as they invest over a period and not just at one time. The essence of SIP investing is averaging the investment cost, and this happens across market cycles. In fact, SIPs should be continued even when the markets are correcting as one gets the opportunity to invest at lower prices.
Q: Which are the sectors one should invest in and why?
You can look at good companies in IT, pharma, chemical and agricultural sector right now. IT and pharma benefitted from the overall lockdown and COVID-19 situation. Monsoon has been good this year in India, so far, and an increase in MSP will help agricultural companies to do well.
Q: The monetary policy committee will be meeting soon. What are your expectations? Will MPC cut repo rate or wait?
I do not expect a rate cut in the upcoming MPC. The RBI may continue to keep interest rates low for some more time, until we see improvement in consumption and spending at a broader level.
Q: What are the major risks (global and domestic) one should keep in mind before investing? Is the outcome of the US elections a risk for India?
At present, correction in global stock markets could lead to a correction in India as well. There is limited visibility on further stimulus in major economies and the reports of a second wave of corona cases in few countries are making markets nervous around the world. FIIs were net buyers for a while, but in the last few days they have been selling. If they continue to sell, we may see more correction in the stock market.
Also, the kind of surge we saw in market from March 23rd was based on liquidity, it cannot be sustained for a very long time considering the overall environment. As an economy, unlocking will help improving consumption and other related activities but the pace is expected to be slow and gradual. These factors some of the risk factors in front of us right now.
On the upcoming US elections, we will have to wait and watch. It is not the election results that matter much, the policies adopted by the elected government have more role to play. We see a lot of business opportunities with the US and they are a big source of FII investors investing in India, hence we will have to watch out for the new government’s policies.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.