‘Market rally may become more broad-based’ – Times of India
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NEW DELHI: ICICI Prudential Mutual Fund MD and CEO Nimesh Shah on Thursday said that the market rally could become more broad-based in the coming months as growth picks up. He added that the current rise is driven by large flows from the developed markets, such as the US, which have low interest rates.
While he suggested that valuations were high, Shah also said that it needed to be looked at in the context of low interest rates. Apart from value picks, he said, small and mid -caps stand to benefit as they have under-performed in the last few months besides getting access to capital at lower cost. Further, he said that companies will see an improvement in profitability, helping boost their stock price.
“…if an investor is ready to stay put for the next five years, one can consider investing in equity funds, but through the systematic investment plan route. The other investment which investors could consider is funds which take a call based on macro factors or business cycle funds. For those looking for opportunities to invest in international markets, one can opt for non-US Equity funds or Fund-of-Funds,” Shah told TOI.
At the same time, he said that it was important to adhere to the principles of sound asset allocation and added that investment in debt instruments could be looked at through a mix of dynamic asset allocation and arbitrage and accrual funds.
Many see debt to be a safe bet, given the sharp rise in stock markets across the board, driven by aggressive rate cuts by central banks to boost economic activity. Shah said that the current rally is expected to continue for some more time as the US Fed pumps in trillions of dollars to revive the economy.
Shah said, “As long as such flows continue, the chances of a major correction in the equity market remain diminished. That said, we usually review our calls based on macro-economic developments. This time, we would review our call if crude oil crosses $60 per barrel, inflation comes back in the Western world and sustains, the US 10-year (treasury yield) surpasses 2%, the surplus liquidity with the RBI comes off sharply, global money market assets under management fall sharply or even if there is some unforeseen geopolitical risk.”
He suggested that retail investors should watch out for any change in the US Federal Reserve’s stance, which can impact markets negatively.
Asked about the reasons for outflows from equity funds, the fund house boss said that investors had turned cautious after the steep fall in stock markets in 2020 and some of them have opted to book profits as a precautionary measure. “But this may not last long. We are likely to see flows again. There has been a healthy addition of fresh SIP accounts in the past couple of months as well,” he added.
While he suggested that valuations were high, Shah also said that it needed to be looked at in the context of low interest rates. Apart from value picks, he said, small and mid -caps stand to benefit as they have under-performed in the last few months besides getting access to capital at lower cost. Further, he said that companies will see an improvement in profitability, helping boost their stock price.
“…if an investor is ready to stay put for the next five years, one can consider investing in equity funds, but through the systematic investment plan route. The other investment which investors could consider is funds which take a call based on macro factors or business cycle funds. For those looking for opportunities to invest in international markets, one can opt for non-US Equity funds or Fund-of-Funds,” Shah told TOI.
At the same time, he said that it was important to adhere to the principles of sound asset allocation and added that investment in debt instruments could be looked at through a mix of dynamic asset allocation and arbitrage and accrual funds.
Many see debt to be a safe bet, given the sharp rise in stock markets across the board, driven by aggressive rate cuts by central banks to boost economic activity. Shah said that the current rally is expected to continue for some more time as the US Fed pumps in trillions of dollars to revive the economy.
Shah said, “As long as such flows continue, the chances of a major correction in the equity market remain diminished. That said, we usually review our calls based on macro-economic developments. This time, we would review our call if crude oil crosses $60 per barrel, inflation comes back in the Western world and sustains, the US 10-year (treasury yield) surpasses 2%, the surplus liquidity with the RBI comes off sharply, global money market assets under management fall sharply or even if there is some unforeseen geopolitical risk.”
He suggested that retail investors should watch out for any change in the US Federal Reserve’s stance, which can impact markets negatively.
Asked about the reasons for outflows from equity funds, the fund house boss said that investors had turned cautious after the steep fall in stock markets in 2020 and some of them have opted to book profits as a precautionary measure. “But this may not last long. We are likely to see flows again. There has been a healthy addition of fresh SIP accounts in the past couple of months as well,” he added.
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