Dalal Street Voice: Choose to Invest in Hybrid Products Amid Market Volatility: Jaiprakash Toshniwal of LIC Mutual Fund Asset Management


Jaiprakash Toshniwal, Senior Equity Research Analyst and Fund Manager at LIC Mutual Fund Asset Management Ltd stated that market volatility is the essence of the stock market, and one can choose to invest in hybrid products which give debt stability and can give equity growth.

In an interview with Kshitij Anand of Zeebiz, Bolinjkar said that globally the share of mutual funds in overall household savings is below single digits (around 2%). It is therefore fair to assume that the flows into equities could continue in the short term. Edited excerpts:

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Q) What does the BJP victory in 4 states mean for markets, economy and reforms?

A) We would not like to comment on any particular party winning/losing an election. However, the re-election of the existing government is generally seen as a positive in terms of the continuation of government policies and actions and minimal change in their governance strategies, thus resulting in a positive impact on the economy.

This positivity has certainly been reflected in investor sentiment and, therefore, in the markets.

Q) The war scenario must have wiped out a good 5-10% of investors’ portfolios in a matter of weeks. What advice would you like to give to investors? Should we stay put, add dips or cash in – what does the story suggest?

A) We believe in long-term investments. While events like this impact equities in the short term, over the long term equities tend to outperform the common investable asset class.

Therefore, we suggest our investors to keep investing and not to change their objective because of these interim events.

Speaking of the current tensions between Russia – and Ukraine – we see the immediate impact on cost inflation which is different across sectors.

Therefore, one must take these changing trends into account and position the portfolio accordingly to cushion the impact.

This is where investing through mutual funds differs from investing directly in stocks. Mutual funds have seasoned and professional investment managers with extensive experience in managing assets through various investment cycles.

Q) If anyone is considering putting Rs 10L after the recent double digit drop seen in the benchmarks from 52 week highs. What is the right asset allocation strategy considering someone is in the 30-45 age bracket? Also, should it be a lump sum or STP?

A) Age is one of many variables in arriving at an appropriate asset allocation. Investor risk appetite, investment objective, personal goals, time horizon are other important factors to consider when allocating assets.

That said, since market volatility is the essence of the equity market, one can choose to invest in hybrid products that give debt stability and can give equity growth.

Packages or STPs are ways to facilitate investments and a matter of personal choice. However, timing the market should be avoided.

Q) With interest rates likely to head north, what is the right strategy for MF investors? Should they consider changing their asset allocation?

A) Rising interest rates have an impact on the cost of capital which, in turn, has an impact on valuation models.

In the past, we have observed that in the scenario of rising interest rates, high-value stocks tend to underperform the market as a whole – thus, one may seek to alter portfolios with the aim of reducing the overall valuation multiple of their portfolios.

Q) Retail investors reaffirmed their confidence in equities amid volatility (geopolitics towards the end of the month) as equity funds saw a net increase of over Rs 19,000 cr in February. What is your opinion and do you think this war scenario could lead to slower flows?

A) Retail inputs are also a function of whether investors have higher disposable income, the acceptability of mutual funds among young people, and the outperformance of equities relative to other asset classes.

We believe these key factors should continue to help MFs attract a greater share of investor savings.

Overall, the share of mutual funds in overall household savings is below single digits (around 2%). It is therefore fair to assume that flows to equity could continue in the short term.

Q) Oil above $100 – what kind of impact do you foresee on the markets, economy and India Inc. over the next few quarters?

A) Higher crude oil prices lead to higher cost inflation. This is negative for the economy because we are a net oil importer. It is also negative for businesses because it adds to cost inflation. However, the same is cushioned by higher foreign exchange reserve and higher remittances which did not exist in the past.

Q) What do you think of the rupee? Which sectors could be most affected by the recent volatility?

A) The rupiah seems to have performed relatively well against the currencies of other emerging economies. This is largely due to the strong foreign exchange reserve compared to past cases where the foreign exchange reserve was weaker when crude prices rose.

Given the current gap in interest rate differentials with the United States, we could see the rupee remaining stable. Any larger than expected influx of FII into Indian stock markets will only strengthen the rupee.

Q) Are there any sectors that you think have run out of steam and investors should ideally consider taking profits or trimming their positions?

A) No sector should be delisted due to a current situation, as all sectors tend to follow the respective industry/business cycles.

You have to determine where the sectors are in this cycle and position yourself accordingly.

Against this backdrop, we see commodity prices rising and there is an increased risk of lower prices, which could impact sectors.

Disclaimer: Investments in mutual funds are subject to market risk, read all plan documents carefully.

(The opinions/suggestions/advice expressed here in this article are solely from investment experts. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)


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