In the short-term, market fluctuations can be used as an opportunity to average the cost. One should invest in a staggered manner to reduce the risk of timing the market said Arun Thukral, MD & CEO, Axis Securities
Geopolitical concerns have added to the uncertainty in the markets and will keep them volatile in the near-term but volatility does not mean capping the upside and it should not be the concern for investors entering the market on the basis of fundamentals, Arun Thukral, MD & CEO, Axis Securities Ltd, said in an interview with Moneycontrol’s Kshitij Anand.
Q: Due to lack of any additional triggers, do you think the geopolitical concerns are likely to add further volatility in markets and cap upside?
A: Indian markets have witnessed high volatility in the past few months due to domestic and global factors. We expect the volatility to continue in the near future as well with the general elections just months away, which would be key to the future course of the policymaking.
If the verdict is in favour of the ruling party, it would signal a continuation of policies. If it is in favour of a stable government, irrespective of the party, markets would welcome it. However, if there is a fractured verdict, the markets might react to it negatively.
Apart from this, the recent tension with our neighbouring country has added to the uncertainty. So, yes, the geopolitical concerns have added to the uncertainty in the markets and will keep them volatile in the near-term but volatility does not mean capping the upside and it should not be the concern for investors entering the market on the basis of fundamentals.
However, in the short-term, market fluctuations can be used as an opportunity to average the cost. One should invest in a staggered manner to reduce the risk of timing the market.
Q: Do you think most of the stocks that have corrected have bottomed?
A: The recent correction has provided an opportunity for investors to buy good stocks at very attractive prices. Though we cannot comment on the bottoming as volatility seems to continue in the near-term but this volatility provides a good opportunity to the investors who are investing in a staggered manner in the fundamentally strong companies.
Fundamentally strong companies mean those companies that have been reporting good results continuously and are backed by visionary and ethical management thus scoring high on corporate governance.
However, investors should watch out for the growth prospect and sustainability of the business. The stock price is just a derivative of business performance and sooner or later it would follow the direction in which business is going.
Hence, short-term volatility might be a concern for companies with unjustified valuations and poor growth prospects but investing in fundamentally sound companies would provide good returns once these geopolitical concerns subside.
Q: How should value investors filter stocks that have seen a double-digit fall in the year 2019 especially from the mid and small-cap space? And, is this time to pick value stocks?
A: Yes, it is a good time to pick value stocks, however, one should be more cautious while selecting. One should not get carried away by the extent of price correction seen and mistake it for the emergence of ‘value’; instead one should look at the potential of stock to create wealth in long run.
Mid and small-cap witness more fluctuations in stock prices as any headwind or even slight fall in business performance cause concerns over its growth prospects.
For example, a small-cap company with higher debt level would soon witness their credit de-rating in case of poor performance for a quarter or two, whereas large companies have greater access to capital and debt, which makes them more stable to pass through short turbulence in terms of a business slowdown.
In case of these mid and small-cap stocks, we suggest small investments at regular intervals in order to avoid the risk of timing the markets and the short term volatility.
Q: With additional volatility in equity markets it looks like investors are turning risk-averse. They are probably looking at fixed income products that seem to be back in flavour. What do you think?
A: Volatility is the inherent nature of the equity markets. However, investors need to stay patient. Risk appetite is tested during volatility and not in a stable market.
In these times of volatility, we suggest the investors identify good quality stocks with growth prospects that may now be available at attractive valuations when compared to a few months back. They should also have a long-term investment horizon.
In the words of Warren Buffett, “Be fearful when others are greedy and be greedy when others are fearful.” The markets have, time and again, proved that those who have stayed with their investments in the most difficult of times have reaped the fruit of their patience and have seen their wealth grow manifold.
So, we would suggest the investors look for fundamentally sound companies and stay true to their investments. Those who have invested in a fundamentally sound company at higher levels can look at the price correction as an opportunity to average the acquisition cost.
Q: Most of the investor portfolios are bleeding and I have come across a lot of people who have sold their MFs and turned towards FDs. What would be your advice to them?
A: The stock market is a wealth creating platform whereas FD investment is considered a way of protecting the purchasing power of money against inflation.
We have always preferred equity market over the asset classes considering the compounding return it has provided over the years.
FDs come with less risk but they provide lower returns as well. If we see the returns by the equity markets over a period of 10-15 years, you would see that it has outperformed all asset classes amid all the headwinds it faced.
We would again suggest the investors remain patient with the stock markets and not panic in the times of short-term volatility.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.