Where should you invest in this erratic stock market? Experts support large-cap funds and SIPs

 Where should you invest in this erratic stock market? Experts support large-cap funds and SIPs

Perhaps this is the first significant decline in the equities markets for many individuals who began trading after 2020. Their fears have been exacerbated by the global economic slump, a significant budget deficit, and geopolitical tensions. Investors in mutual funds have been faithful to their SIPs so far. What now ought to be their plan of action?

The small- and mid-cap stock surge was the main driver of the equities market's sharp rise between March 2023 and September 2023.

Investors on Wall Street are being unsettled by the volatility in the equities markets. After six straight days of decline, the benchmark BSE Sensex has collapsed by almost 3,000 points, unsettling investors, particularly those who entered the market after the markets recovered from the Covid-caused plunge in 2020.

But according to chief investment officers and senior fund managers that Moneycontrol talked with, investors need to have trust in the Indian economy's projected development trajectory.

the causes of pain

The small- and mid-cap stock surge was the main driver of the equities market's sharp rise between March 2023 and September 2023.

This happened in the context of growing global dangers, such as rising interest rates and complex debt dynamics in different regions of the globe, high oil prices because of supply issues that might affect inflation, and current geopolitical tensions.

It is anticipated that the Indian economy and profits growth would demonstrate resilience in the face of these global macroeconomic concerns. Neelesh Surana, Chief Investment Officer (CIO), Mirae Asset Investment Managers (India), stated that "this resilience can be related to increased investments in the housing sector, robust businesses and bank balance sheets, expanding possibilities for services as well as manufacturing exports, potential improvements in agriculture, and the positive impacts of a more formalized economy."

Quote 1 from Neelesh Surana

However, markets have gotten wobbly during the last several sessions.

A top investment officer of a mutual fund institution said that investors worldwide have grown wary of developing countries due to recent developments in geopolitics and the high yields on 10-year G-sec bonds. It is anticipated that the global budget deficit would increase, the economy will contract, and interest rates will likely stay high. Due to them, markets are declining, and some investors profited by selling soon after. However, the analyst said that it would only take time for the markets to recover.

Market projections

Investors shouldn't give up on India's economic narrative, says Nilesh Shah, Group President and Managing Director of Kotak Mahindra Asset management. "India's growth is increasing, even though equity markets are declining," he said.

Shah argues that three things are necessary for every market to function: fund flow, or money, emotion, and fundamentals. Although feelings and money are erratic and subject to change at any moment, fundamentals require time to establish. Look at the earnings narrative of corporate India now. Corporate India is expected to rise by 15–18% this quarter. These days, some segments of the stock market are being affected, such as micro-caps, mini-caps, and SME stocks that are experiencing corrections. However, he noted that the whole market is still trading at its historical value.

Experts believe that there may yet be some market correction in the near future.

Nippon India Mutual Fund's CIO-Equity, Sailesh Raj Bhan, said, "Maybe this challenging environment might persist for another two or three months." The price adjustment isn't going to endure long, in my opinion. Therefore, space out your investments during this time frame, Bhan said.

Must you discontinue your SIPs?

One of the main factors contributing to the resiliency of the Indian markets over the last three years has been SIPs, which allow investors to deposit a certain amount in mutual fund schemes on a monthly basis. Remarkably, according to statistics supplied by the Association of Mutual Funds in India (AMFI), investments made via SIPs surpassed the Rs 16,000-crore threshold for the first time in September 2023.

Surana of Mirae Asset, who has a positive outlook on the markets and the Indian economy, advises investors to keep allocating money via SIP. "The benefits of compounding will accrue over time with moderate expectations of returns, say around 12 percent, a long-term perspective, and a staggered approach to investments," he said.

Anish Tawakley, Head of Research and Deputy CIO Equity at ICICI Prudential Mutual Fund, adds that an investor's results are higher over the course of a full market cycle the longer they remain involved under a systematic investment plan (SIP). Therefore, it is crucial to stick with SIPs regardless of market volatility.

According to Bhan of Nippon India Mutual Fund, if you would want to make a lump sum investment right now, you should use a Systematic Transfer Plan (STP) and stage it over two to three months. With STP, you may invest a big payment in a short-term or liquid fund and then move a corresponding amount of money, divided into smaller amounts, to an equity fund of your choosing that is managed by the same fund firm.

Now, where ought one to invest?

Mutual funds have poured a lot of money into small- and mid-cap funds during the last two years. However, inflows into large-cap funds have been constrained.

According to Bhan, "FIIs have been selling a lot of these stocks over the past 1.5 to 2 years, which is largely why large-caps have underperformed recently."

Experts say that since large-cap stock values are rational and logical, this is the strongest risk-reward area in equities today.

Steer clear of small-cap stocks, particularly those whose market value is less than Rs 10,000 crore. These businesses already possess substantial ownership. It is preferable to steer clear of small businesses entirely, advises Bhan.

Tawakley of ICICI Prudential MF also recommends large-caps because of their fair pricing to mitigate market volatility. When it comes to small and mid-cap stocks, the investment firm is still cautious. In order to easily manage turbulent times, investors should also take into account hybrid strategies like the balanced advantage, equity savings, aggressive hybrid, especially the multi-asset category, according to Tawakley.

Given the state of the market, Shah even advises investors to consider large and large-midcap funds.

Umeshkumar Mehta, CIO of Samco Mutual Fund, advises STP as well in order to capitalize on volatility for new investors. Or put money into hybrid funds, he said, to improve their drawdown and upside potential.

Investment plan

Mehta says that an investor may remove some money from the table if she has the mindset that she wants to strategically change around, taking some cash calls and going into debt or bonds.

This is an excellent opportunity to deploy funds to fixed-income assets since debt yields are currently high. If that's the case, you may withdraw part of your money and reenter the market just before the next election, when many predict the market will have fully corrected for the gains it has achieved over the previous three years, he added.

However, an investor should not be discouraged from long-term investment if they think that India's development narrative is in a strong position and there will be a correction in between.

Make sure you have at least a five-year perspective if you want to stay involved and you think that India's economic narrative is promising. Be disciplined and stop reviewing your net asset value often, Mehta advises.