A) I think we need to respect the fact that investors are increasingly well informed and do not follow hitherto predictable patterns of investing.
They understand the discipline required for long-term investing and hence the affinity towards SIPs (systematic investment plans) continued at close to Rs 8,000 crore in June.
Considering that the quarter went by saw huge volatility, investors have largely stuck to goal-based investing and stayed the course.
Lump-sum redemptions have been a different story. In the last quarter, most investors have had the benefit of sitting down and understanding the investment space a lot better.
Again, I believe most of the redemptions have happened from direct plans, where it is natural to see an overreaction from the investors due to the absence of a calming influence of advisers.
Add to that, the convenience technology embraced by an investor and you are seeing the emergence of D-I-Y (do it yourself) investing.
In the short term, direct stock trades would probably have given much better returns than a conventional diversified MF basket, which would have accentuated the trend towards stock investing
In the same vein, we have seen a lot of attention come in from mutual fund advisers and family offices on a “Smart Alpha” portfolio strategy of 12 stocks, which we run called Emkay’s 12. This has decisively outperformed largecap MFs in every simulation exercise we have carried out.
Water will find its own level and money will continue to flow into capital markets through any of the above routes.
I would not get too swayed by short-term trends. There is always a room in capital markets for all types of investors over a period of time.Q) Debt mutual funds were in a spot and now equity MFs are also facing redemption pressure. Mutual funds were designed to diversify risk but 2020 has brought a new reality to the fore. Do you think fund managers are losing the edge?
A) On the contrary, I think this will be a great time for fund managers focused on investing discipline and risk management to tide over this short-term bump.
I have been seeing the MF industry since the 1990s…there is an inherent resilience in the way all asset management vehicles are run, be it MFs, PMS, or AIFs and they get only stronger with each systemic upheaval. The best fund managers have survived the worst crisis–it will be no different this time
The opportunity, as always, is for high-quality advisory platforms. There is already a huge segment of direct plan investors who are looking for someone to handhold them.
This is the time to calm the investor down, stick to the basics of asset allocation and keep investors focused on their long-term goals
Q) What is your call on the markets for the next 6-12 months? Do you think the market will come to terms with the fundamentals?
A) I believe that the markets are largely liquidity-driven and will continue to be so for the next couple of quarters, which means that there will be sharp pullback as well.
What will work is sticking to high-quality companies which have a high ROCE, the ones which have predictable earnings growth over the next few quarters and/or are either sitting on cash or have raised cash recently and probably are in leadership positions in their respective segments.
Irrespective of the market cap, one should own such businesses which will always be viewed by and large agnostically to what markets look like.
Q) What is driving the rally in the small & midcaps and especially in the penny stocks? Do you think the party will last?
A) The problem in lesser researched companies is as much quality as is corporate governance, particularly in the mid and smallcap segments.
If the stock stands by the touchstone of quality, as mentioned above, and corporate governance, they will do well irrespective of market caps.
We run a proprietary model called “E-Qual”, which is the country’s first calibrated model to measure corporate governance. Not only have we managed to pick winners in our portfolio, but equally importantly, there have been no blowouts either.
I think there is a lot of money to be made in high-quality small and midcaps and these are early days in terms of a rallyDisclaimer: The views and investment tips expressed by the 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.