Mutual Fund: The volatility in the equity markets is causing concern among investors in the financial district. The BSE benchmark Sensex has witnessed a steep decline of more than 3,000 points over the course of six consecutive sessions, leaving investors, particularly those who began their investments after the market rebounded from the pandemic-induced downturn in 2020, feeling anxious.
The Reasons Behind the Current Situation
Between March 2023 and September 2023, the equity market experienced a rapid upswing, primarily driven by the surge in small and midcap stocks. This occurred in the midst of escalating global risks, which included heightened interest rates and challenging debt dynamics in various regions, concerns about elevated oil prices potentially affecting inflation due to supply issues, and recent geopolitical tensions.
The Indian economy and earnings growth are anticipated to exhibit resilience. This resilience can be attributed to increased investments in the housing sector, strong corporate and bank balance sheets, fresh opportunities for service and manufacturing exports, potential enhancements in the rural economy, and the positive impact of a more formalized economy.
As Nilesh Shah, Group President and Managing Director at Kotak Mahindra AMC, puts it, “Money and sentiments are fickle and they can turn around any time, but fundamentals take time to build. Now, look at corporate India’s earning story. This quarter, corporate India will grow by 15–18%. Today, stock markets are getting impacted in some quarters like micro-caps, mini-caps, and SME stocks that are seeing corrections. But the broad market is still trading at historical valuation.”
Perhaps this challenging environment might continue for another two-three months. I don’t think the price correction will last very long. Hence, stagger your investments over this period.
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Should You Pause Your Mutual Fund SIPs?
Systematic Investment Plans (SIPs), which allow individuals to invest fixed amounts in mutual fund schemes at regular intervals, have been a significant factor contributing to the resilience of the Indian markets over the past three years. Notably, SIP investments surpassed the Rs 16,000-crore mark for the first time in September 2023, according to data from the Association of Mutual Funds in India (AMFI).
Where Should You Allocate Your Investments Now?
In the last two years, there has been a substantial inflow of investments into small-cap and mid-cap funds through mutual funds. In contrast, large-cap fund inflows have remained limited.
It is advised to exercise caution with small-cap investments, particularly in companies with a market capitalization of less than Rs 10,000 crore. These companies tend to have a significant ownership base already. It is advisable to steer clear of smaller-sized companies altogether.
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