“We believe it’s a good time to invest in equity schemes, be it large cap, mid cap, small cap schemes. Small cap segment is available very cheap so we believe investors should invest in them if it fits their asset allocation,” says Raj Talati, CFP and partner, ABM Investment.
Many advisors believe that the valuations have become attractive in the stock market. They also share the view that India is going to benefit from many things coming together to make it extremely promising over a long period of time. The Indian economy is poised to grow at a faster pace in the coming years. The recessionary fears due to higher inflation and interest rate in developed countries may keep the market in check for sometime, but long term prospects are extremely positive, say mutual fund participants.
The Reserve Bank of India held rates in its policy review in the last week. Though it’s not clear whether the RBI might hold rates for a long time, the consensus is that we are near the peak rate. That means even if the RBI hikes due to some reason, it may pause after that. If it happens, it is another positive for the economy and the market.
“We are asking investors to look at small cap schemes as the valuations are extremely attractive compared to large and mid cap segments. If investors are ready to take risk and have a long term investment horizon of at least 10 years, I believe they can make very good returns, says Chokkalingam Palaniappan, Director, Prakala Wealth.
However, you should not think it is going to be a smooth ride with the market offering high double-digit returns year after year. “We believe equity investors should be circumspect because there will be more bad news than positive news in the next six months. However, if you believe that India is on a secular growth trajectory, you can continue to bet on equity,” says Babu Krishnamurthy, Director, Finsherpa Investments.
Chokkalingam also cautions investors that they should be prepared to go through the entire cycle. Many investors tend to stop or sell their investments when there is bad phase in the market. Chokkalingam says that once investors go through the entire phase and see profits, they become mature investors. Mutual fund participants are still divided on whether investors should choose schemes that stick to value or growth investment strategies. In the last two years, mutual fund schemes that have subscribed to the growth strategy suffered greatly. Schemes that went with value strategy did very well during this period.
Talati believes that the value theme has played its course in the last two and a half years and the next phase would favor the growth strategy. He say he prefers Axis Small Cap Fund, HDFC Small Cap Fund.
Chokkalingam recommends Nippon India Small Cap Fund to investors who prefer to invest on the basis of recent returns. For evolved investors, he is recommending Kotak Small Cap Fund, Bank of India Small Cap Fund, Axis Small Cap Fund, among others. “There are schemes that follow the value strategy and some that follow the growth strategy. I am inclined towards growth strategy as I believe they are likely to benefit more in the coming days, he says.
Babu Krishnamurthy warns investors that investors should not invest in small cap schemes only because the valuations are comparatively attractive in the small cap segment. He warns investors that they should be prepared to deal with rough patches.
