A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC, who manages assets worth Rs 247,520 crore spoke to The Indian Express on the stock market fall, losses by investors and redemption pressures. Excerpts:
Stock markets have fallen sharply in the last one month. Has the market reached the bottom?
The Sensex has fallen from the peak of 42,273 on January 20, 2020 by almost 40 per cent to its current level. Such a sharp fall has also brought the market to an attractive level. However, uncertainties around Covid-19 and the news flow around it still remains a hanging sword. While one can assume this will stay for some time, it appears that market has discounted negative news quite substantially within a matter of two months from its peak period. This makes me feel the market may have limited downside from here, say about 6-8 per cent, and can settle at these levels and begin to move up when the news flow reverses in favour of stability.
Do you think markets have entered the bear phase? Will there be a recovery in the near future?
Broad economy across the globe will see a substantial slowdown due to lockdowns and with no activity in any sectors or any part of the economy for some time. A complete lockdown has taken the earnings of the labour force across the nation. It has also taken away 3-4 months of earnings for majority of companies mainly in the discretionary spending space and also sectors like travel and tourism, hospitality, airports and ports, airline and transportation industry among others. Such a sudden drop in earnings naturally will have an impact on the savings of public at large and there is a likelihood of change in the behaviour of consumer spending. The government is expected to take decisive steps to revive economic growth. Therefore, equity market may see a bounce back purely on the basis of hope and optimism returning, which is the current missing piece.
Investors, including MF investors, suffered huge losses in March. NAVs have plunged. How can they recover losses?
The coronavirus related market impact has affected the entire industry and investors across mutual funds have not made money this year post this unprecedented fall. The extensive market fall due to Covid-19 would have also impacted 2-3 year returns. I would assume markets will first come back to its normal range, stabilise and then begin to move up on the basis of fundamental changes. Therefore, one should keep the equity as a long term investment and should probably look at investing more at the current level in order to build long term portfolio. Markets have recovered from substantial losses in the past as well… hence investors should not worry and remain hopeful of a repeat of the same upside that comes post a downtrend, as has happened in the past.
What should be the ideal investment pattern for retail investors during turbulent times like this?
In the current market environment, investors should have a good mix of actively managed equity funds, debt funds and index funds or ETFs. MFs cater to all types of investor needs by offering products for different objectives from savings (liquid fund), income funds, long term wealth creation (large cap and multi cap funds) and for tax saving purpose (ELSS). Investors should have exposure across these four categories while planning their mutual fund exposure. When one invests only in equity, he is exposed to higher market volatility and this may defeat the purpose of asset allocation that can be achieved through diversified portfolio selection. Investors should continue with their SIP which is designed to take care of such volatilities.
There are reports that MFs are facing redemption pressure. How are you tackling it?
Every year due to liquidity needs before financial year end, mutual funds do face redemption pressure and then it comes back with the start of new financial year. Purely on the basis of our experience, our fund managers had created liquidity to meet any such redemption and also look for buying opportunities if the yield spikes. It is important to sensitise investors that current markets have created opportunities both in equity and fixed income space. Unless one really has an urgent need of funds, redeeming out of panic in such unique market conditions will make their notional loss an actual loss.
Do you foresee a big decline in economy in fiscal 2020-21 in the wake of Covid-19 pandemic?
Covid-19 pandemic and the current lockdown has taken the economy behind by at least one year from growth perspective. The government has been taking steps and instituting many structural reforms which would benefit the economy in the long run. Since India’s growth rate has been falling continuously and will fall further as a result of this pandemic, we should probably hit the bottom soon and begin to move up on the back of government becoming more aggressive in bringing the economy back to growth path. But this will not happen overnight and the recovery will be gradual.
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