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Last Updated : Aug 13, 2019 02:18 PM IST | Source: Moneycontrol.com

'Negative SIP returns in short to medium term is a blessing in disguise'

We strongly advise investors to continue with their SIPs in equity fund. In fact as a long term investors, SIP works best as a person can accumulate more at lower prices

Kshitij Anand @kshanand

One should increase the amount or number of SIP when the negative returns are higher because when the market recovers, the return on accumulated corpus would be higher and one would end up accumulating higher corpus, Pankaj Pandey, Head of Research, ICICI Direct, said in an interview with Moneycontrol’s Kshitij Anand.


Edited excerpts:

Q: Do you think investors are caught in this dilemma in the current market environment – ‘What is looking cheap is not safe, and what is safe is not cheap’?

A: Notwithstanding the recent fall, the valuation dichotomy has been here since the last 2-3 years. The Indian equity market has witnessed a strong divide in valuations across quality and ordinary businesses notwithstanding market capitalisation which warrants that investors should be stock specific.


Emphasis should be on buying a business that is run in a capital-efficient way and possess sustainable growth prospects. Well, the harsh reality is that quality always commands a premium valuation, albeit it is accentuated in the current market environment.


Q: 2019 could turn out to be the year in which many multibaggers could be born if someone holds them for a long term period. What are your views?

A: With a deep price correction, this year presents investors to have a re-look at quality companies with capital-efficient businesses and consistent cash flow generation that can provide strong returns over a long-term.

Period like this should be utilised to accumulate such stocks through SIP to build up a long-term equity portfolio for wealth creation.

Close
Q: How should investors make a case for investment at a time when everything is falling?

A: Warren Buffets famous quote that it is wise to be “fearful when others are greedy and greedy when others are fearful” is apt advice for investors in a market as such when cyclical uncertainty and volatility is clouding long term growth potential of an economy.

We believe that volatility essentially opens an opportunity to build a good long term portfolio.

We continue to advise investors to stick to quality names that have a capital-efficient business model with sustainable growth prospects to steer through the market volatility.


Q: Do you think the FII outflow has just started and will only pick pace in the near future?

A: The higher tax on FPIs, as announced in the Union budget, is not a major reason for outflows. The global growth outlook concerns, owing to renewed fears of tariff war have led to risk-off trade globally.


Therefore, flows in the medium to long term will be a function of global market outlook ahead. However, the finance ministry recent comment on willingness to discuss issues with FPI could act as some damage control in the near-term.


Q: According to you, what can the government do to turn the sentiment on D-Street?

A: Given that the global growth concerns and renewed tariff war are the major sentiment spoiler for the equity market globally, the government can do little to tackle the issues, which do not pertain to the domestic economy.Having said that, we expect the government to continue its growth push focus through investments as announced in the Union Budget, which, in our view, should revive the capex cycle, going ahead.Q: July Auto sales numbers are not encouraging. Most of the auto names are trading with double-digit cuts so far in the year 2019 and also below their respective 200-DMA. Do you think this sector could turn out to be the dark horse?

A: We don’t think that the auto sector is out of woods yet and maintain our negative bias on the sector.

In the near-term structural demand, issues persist for the domestic automobile sector, namely bloated channel inventory, rising penetration of shared mobility, government’s thrust on the electric vehicle as well as impending price hike due to BS-VI transition (April 2020).

We believe all these factors to result in no meaningful volume growth in the automobile domain over FY19-21E which will limit the valuation multiples being commanded by the auto players domestically and hence our negative stance.

Q: A recent report by World Bank said that India slipped to 7th slot in the global GDP ranking. Will government be able to achieve the dream of becoming a $5 trillion economy in the next five years?

A: It is unfair to judge the medium to the long term growth potential of an economy with a near term cyclical downturn.

The structural reforms are in place with the government intends to focus on investment, while the rate cycle, as well as inflation, is likely to be benign, which is a precursor to economic recovery. We, therefore, remain constructive in the long term growth story of the Indian economy.

Q: What is your advice to investors at a time when most of them would be thinking to cancel their SIPs and turn away from equity investment as portfolio returns are negative?

A: We strongly advise investors to continue with their SIPs in an equity fund. As long term investors, SIP works best as a person can accumulate more at lower prices.

Therefore, lower SIP returns in the near term indicate that one is accumulating at lower levels. Historically it is observed that lower the rate of return, the better it is to invest.

Negative SIP returns during a short to medium term is a blessing in disguise for investors. If possible, one should increase the amount or number of SIP when the negative returns are higher because when the market recovers, the return on accumulated corpus would be higher and one would end up accumulating higher corpus.

Disclaimer: The views and investment tips expressed by investment expert 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.



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First Published on Aug 13, 2019 02:11 pm
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