The Sensex hit an all-time high on June 21 after consolidating for the past eight months. The rally has been fuelled by a revival in Foreign Institutional Investor (FII) inflows. During this period, mid-cap and small-cap indices have also been able to hit their respective record highs.
Moneycontrol caught up with Swarup Mohanty, Chief Executive Officer of Mirae Mutual Fund, to get a lowdown on the market outlook, areas of concern and the strategy that investors should follow now. Edited excerpts:
Are we going to see an end to the bull run now? Will equity markets fall?
We've always pointed out that once the strength of India data points come out, there will be a reversal of FII flows, and that is what has happened. Look at the last 45 days of flows of FIIs, which has taken the market up. I don't see any reason for any sudden reversal of flows at this moment. However, when stocks go up very suddenly, there is an inherent tendency of markets to sort of consolidate, but there is no data pointing towards a reversal at this moment.
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What are your biggest concerns now?
Some of the concerns are also sort of beginning to negate themselves. Oil today is looking more in the comfort zone than it was six months ago. The US markets, which were depressed over the past year, have also put inflation fears behind them. So, some of the large worries that were there are beginning to get mitigated. From here on, we don't see many negatives for the markets.
When you look at global markets, maybe in the near term, India looks a little more expensive than others. But in the long run, post-Covid, India's story has been very positive.
Small-caps and mid-caps have done very well. But where would you keep your money right now, large-caps, mid-caps or small-caps?
If you see the flows of the market, buying has been one way in mid-caps and small-caps, but from the mutual fund perspective, there has been one-way selling in large-caps. It’s just that FII flows have taken large-caps higher, just like we had thought they would. Nothing wrong or nothing right in buying midcaps and small-caps as far as one is cognisant of the risk change in the portfolio. We see the risk-reward in favour of large caps even now.
Are you worried that some of the bigger names such as HDFC have not been able to participate in the broader market rally?
Without talking about specific stocks, I'm very happy when some stocks don't participate. This means that there is something left to buy. Fundamentally strong companies not participating in a rally is a good thing from an asset manager’s perspective.
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For investors, what would be the strategy right now — to maximise (and therefore invest more) or protect gains?
I have never followed a policy of protecting gains or losing gains. Your investment is a factor in your asset allocation. At this moment, if your allocation is overweight on equity, then your incremental flows should go into other asset classes like debt, gold, international equities and so on. It is as simple as that.
There is no real need to take money off the table. But you must balance it with other asset classes. You exit India at your own risk — I have been saying this for a long time. India is on a structural path to doubling economic growth from here on, then why would you want to leave that space. One of the best ways to benefit from this structural growth for an Indian investor is through capital markets, and you will benefit if you sit in the capital markets. You cannot benefit by timing this market or staying away from it.
Look at how things have changed over the past 45 days in the markets. And if you see the flow of funds, there is a lot more redemption than purchases. Nothing wrong in booking profits, but when you are booking profits, write your exit NAV (Net Asset Value), and if you're able to enter at a NAV that is lower than the exit, then it makes sense.
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