Where to park your money when markets go volatile? Experts bat for SIPs, large-cap funds

The turbulence in equity markets is shaking up investors on the Street. The BSE benchmark Sensex has crashed over 3,000 points after six consecutive sessions of fall, making investors, especially those who started investing after the markets’ recovery from the Covid-induced fall in 2020, nervous.

But top fund managers and chief investment officers that Moneycontrol spoke with say that investors must keep faith in Indian economy’s growth trajectory.

Reasons behind pain

Between March 2023 and September 2023, the equity market experienced rapid growth, primarily driven by the rally in small and midcap stocks.

This occurred against a backdrop of escalating global risks, including high interest rates and challenging debt dynamics in various parts of the world, elevated oil prices due to supply concerns potentially impacting inflation, and recent geopolitical tensions.

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“Despite these global macroeconomic challenges, the Indian economy and earnings growth are expected to display resilience. This resilience can be attributed to increased investments in the housing sector, robust corporate and bank balance sheets, new opportunities for service and manufacturing exports, potential improvements in the rural economy, and the positive impacts of a more formalised economy,” said Neelesh Surana, Chief Investment Officer (CIO), Mirae Asset Investment Managers (India).

However, in the past few sessions, markets have become shaky.

According to a chief investment officer at a mutual fund house, given global geopolitical events and high 10-year G-sec yields, global investors have become cautious on emerging markets. “There are expectations of economic slowdown as well as higher global fiscal deficit and interest rates may continue. These are pushing markets down, and some investors took advantage and sold quickly. But it will be a matter of time before the markets recover,” the expert said.

Markets outlook

According to Nilesh Shah, Group President and Managing Director, Kotak Mahindra Asset management, investors should not lose faith in India’s growth story. “Equity markets may be going down, but India’s growth is going up,” he said.

As per Shah, for any markets to run, it requires three things; fund flow (money), sentiment and fundamentals. “Money and sentiments are fickle and they can turn around any time, but fundamentals take time to build. Now, look at corporate India’s earning story. This quarter, corporate India will grow by 15-18%. Today, stock markets are getting impacted in some quarters like micro-caps, mini-caps and SME stocks that are seeing corrections. But the broad market is still trading at historical valuation” he said.

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However, experts feel that, in the near-term, markets may continue to see some correction.

As per Sailesh Raj Bhan, CIO-Equity at Nippon India Mutual Fund, said, “Perhaps this difficult environment might continue for another two-three months. I don’t think the price correction will last very long. Hence, stagger your investments over this period,” said Bhan.

Should you stop your SIPs?

SIPs, wherein one can invest a fixed amount in a mutual fund scheme at regular intervals, have become one of the key reasons behind Indian markets’ resilience over the past three years. Notably, investment via SIPs crossed the Rs 16,000-crore mark for the first time in September 2023, as per the data released by the Association of Mutual Funds in India (AMFI).

Mirae Asset’s Surana, who remains constructive on Indian economy and the markets recommends that investors should continue to allocate funds through SIP. “With moderate expectations of returns say around 12 percent, a long-term perspective, and a staggered approach to investments, the benefits of compounding will accrue over time.,” he said.

Anish Tawakley, Deputy CIO Equity and Head of Research at ICICI Prudential Mutual Fund also suggests that the longer an investor stays invested via SIP, better is the outcome over a complete market cycle. “So, it is important to continue with SIPs, irrespective of market volatility.”

Nippon India Mutual Fund’s Bhan says that if you wish invest lumpsum at this moment, you should invest through a Systematic Transfer Plan (STP) and then stager it over 2-3 months. STP is a facility where you invest a lumpsum amount in a liquid or a short-term debt fund and then transfer an equal sum of money, in smaller lots, to an equity fund (within the same fund house) of your choice.

Where should you invest now?

Over the past two years, small-cap and mid-cap funds have been receiving heavy inflows via mutual funds. On the other hand, flows into large-cap funds have remained limited.

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“Large-caps have underperformed in the recent past largely because FIIs have been selling a lot of these stocks over the past 1.5 to 2 years,” said Bhan.

According to experts, within equity today, this is the best risk-reward segment as valuations in the large-cap segment are reasonable and sensible.

“Avoid small-caps, especially companies with a market capitalisation of less than Rs 10,000 crore. These companies have material ownership already. Small-sized companies are best avoided totally,” suggests Bhan.

ICICI Prudential MF’s Tawakley, also, suggests large-caps to offset market volatility as they are reasonably priced. The fund house maintains a cautious stance on small and mid-caps. “Investors can also consider hybrid strategies like the balanced advantage, equity savings, aggressive hybrid or the multi-asset category to navigate volatile times with ease,” said Tawakley

Even Shah suggests Large and Large&midcap fund category to investors given market conditions.

To first-time investors who are stating afresh, Umeshkumar Mehta, CIO, Samco Mutual Fund suggests STP too to take advantage of volatility. “Or invest in hybrid funds so that they are better-off in terms of drawdown and upside potential,” he said.

Investment strategy

As per Mehta, if an investor has the thought process that she wants to tactically shift around -- take some cash calls and get into debt or bonds -- then she can take some money off the table.

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“Debt yields are also high at present and so it is a good time to allocate to fixed-income investments. In that case, you can take some money off the table and enter the markets again just around elections next year when many believe markets would have completed the correction of the gains it has made in these last three years,” he said.

On other hand, if an investor believes that India’s growth story is in a good position, then some correction in between shouldn’t deter him or her from long-term investing.

“If you believe in India’s growth story and wish to remain invested, then make sure you have at least a five-year horizon. Stop checking your net asset value regularly and be disciplined,” Mehta suggests.