- 2 years ago
#BQMutualFundShow | How should investors respond to recent market volatility vis-a-vis their #mutualfund investments? Are small & mid-cap funds still attractive option?
Finfix Research & Analytics' Prableen Bajpai and #Wiseinvest's Hemant Rustagi share their views, in conversation with Tamanna Inamdar. #BQLive
Finfix Research & Analytics' Prableen Bajpai and #Wiseinvest's Hemant Rustagi share their views, in conversation with Tamanna Inamdar. #BQLive
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00:00 Welcome, you're watching the Mutual Fund Show with me, Tamannaa Enamdar.
00:04 We've had a tough last five sessions in the markets.
00:08 Small cap and mid cap stocks have been badgered.
00:12 In fact, close to four and a half to five percent drop in these indices in the last few sessions.
00:18 Now, why am I talking about that on the Mutual Fund Show?
00:21 That's because small cap funds and mid cap funds have been the absolute favorite
00:26 by a long shot for retail investors, for SIP inflows over the last many months.
00:33 And in the last year or so, you've seen 54 percent of the inflows going into small cap funds.
00:40 Is this the time to relook at those investments?
00:44 What should be your outlook going forward?
00:46 Are these funds really performing as well?
00:48 To speak on this, I'm joined today by Praveen Bajpai,
00:52 founder of FinFix Research and Analytics, Hemant Musthegi, CEO of Wise Invest,
00:58 also joins me on the show.
00:59 Welcome to both of you.
01:00 And thank you so much for speaking with us on the show today.
01:03 Praveen, let me just get your overall view.
01:05 Is there a bit of panic, a sense of panic that typically follows these phases of
01:10 correction in the markets when it comes to mutual fund investors and retail investors?
01:14 Good afternoon, Tamannaa. Great to be here.
01:19 So I think when the mid cap and small cap and large cap indices,
01:22 all three have gone up year to date, we've seen a decent movement in the large cap index.
01:28 And of course, a phenomenal about four times,
01:30 more than four times movement in the mid cap and the small gap segment.
01:33 And when you see a little correction, I think a lot of investors who are,
01:38 you know, who've been in the markets, who've seen how the markets move,
01:42 are actually excited to take this as an opportunity.
01:48 And in fact, increase allocations.
01:50 At the same time for newer investors, yes, I think the concerns are there that,
01:55 you know, we've just started and the investments start looking bad,
01:58 you know, somebody who started a month or two back.
02:00 So I think it's a mixed reaction.
02:03 But Tamannaa, definitely, if I think the macros look good,
02:06 if fundamentally, you know, there are no issues,
02:09 then any sort of a broader market correction, I think is an opportunity.
02:14 And a lot of investors have started to understand that,
02:17 especially investors who are doing investments via staggered modes, such as STP and SIPs.
02:24 So yes, everybody looks at the portfolios feels bad that,
02:27 you know, yes, there is a bit of red.
02:29 But I, till now, haven't witnessed much of a panic,
02:32 at least coming in from our investors.
02:35 You know, the concern, though, is and let me take this question to Hemant.
02:40 And of course, I want your overview on,
02:42 you know, the kind of reactions which we're expecting to see
02:45 with the pummelling in small cap and mid cap stocks.
02:49 And one of the reasons for that is a sense that maybe valuations have gone up.
02:53 The fundamentals of this space is being looked at,
02:55 the companies are being looked at more closely.
02:58 Do you see an impact of that?
03:00 Because that sort of generic advice is always there,
03:03 that in the long term, everything will be fine.
03:05 But how long is that long term is the question?
03:10 Well, Tamanna, I think, since we're talking about these two segments,
03:14 specifically mid and small,
03:15 we know that they tend to be more volatile than large caps.
03:19 But obviously, in the long run,
03:22 they also have the potential to deliver better return than large caps can deliver.
03:27 And when I'm talking about large cap is obviously relative to one's own time horizon.
03:31 So, you know, my view is that anyone who has been investing in these segments
03:38 in a proper proportion of that proportion,
03:39 obviously, they can be a thumb rule.
03:41 But if you've been looking at your own risk profile or time horizon,
03:44 I don't think really investors need to worry about the recent volatility that is there,
03:50 especially in these two segments.
03:52 And the reason for that is that we have seen that time and again,
03:55 you will see the volatility for different reasons.
03:57 It's a natural phenomenon.
03:59 Every equity investor has to deal with it.
04:02 If you're investing in these two segments for a longer duration,
04:06 not you mentioned about how long is the long term.
04:09 I mean, honestly, if I'm someone who is investing for my
04:12 children's education or for my own retirement,
04:16 which could be maybe 10, 15, 20 years away,
04:19 and I'm very sure about the allocation that I made to these two segments,
04:22 and I'm investing through SIP,
04:24 I don't think really I need to worry about it.
04:26 The problem is when you as an investor try to do what your fund manager is supposed to do.
04:30 For example, you talked about the valuations,
04:32 but that's the job of the fund manager to see as to where the valuations are high
04:36 and where there are valuations are looking good,
04:39 make changes in the portfolio.
04:40 That's why the money is entrusted to the fund manager.
04:43 For me as an investor, I need to really focus on
04:46 how much is my money being allocated to these two segments.
04:49 And like I mentioned, as long as I'm investing in a disciplined manner
04:52 with a clearly defined time horizon,
04:54 I don't think any investor need to really worry about it.
04:57 You know, since you just mentioned that it is the fund manager's job, you're right, it is.
05:03 Are they doing a good job then is the question.
05:05 And we just pulled out this data,
05:06 small cap funds, the average NAV year to date was up 22%.
05:11 If I compare that with say the SME 100, that had a return of about 30%.
05:17 For mid cap funds, the average NAV was up 18% year to date,
05:21 and the index performed about 24%.
05:24 Of course, these are averages and some funds would have been superior, some may not have.
05:29 What is the best option?
05:32 Probably just taking forward from what you've said,
05:34 that a lot of seasoned investors now realize that these dips are opportunities.
05:40 How should you go about that?
05:42 What are the options you should look at?
05:44 And are ETFs also a good option here then?
05:46 So within the mid caps and small caps, Samana, I feel that for mid caps,
05:52 actually taking the index route is a decent choice.
05:55 So because there is in fact a huge divergence between the best performers
06:00 and the worst performers, and it's not just on a year to day basis.
06:05 Date basis, if you see five year returns, 10 year returns, seven year returns,
06:09 there is always a 10% to 15% difference as well in the best and worst performers.
06:14 So for investors who can actually choose a decent fund for themselves
06:17 or have somebody to guide them with it, definitely you continue with your investments or take--
06:23 if you don't have the mid cap or the small cap segment,
06:27 depending on the risk appetite, just like Hemant, she mentioned that
06:31 if your risk appetite and the combination portfolio that you have, they must be in sync.
06:37 So if that is the case, then definitely you can increase a bit of allocation
06:42 if there is still scope, otherwise you continue with the investments.
06:45 And for those who are looking for a newer investment now,
06:52 ETFs are only a different mode of investing in equities.
06:57 And I feel for retail investors, index funds can actually do the job.
07:01 But within the small cap segment, I think there is still a decent scope for alpha generation
07:07 by the small cap fund managers.
07:09 And I think we are still slightly away from pure passive strategies, though.
07:12 Though already we do have a micro cap index also available to the investors,
07:17 which is the 500 first to the 750th companies allocation we get.
07:23 So I think within mid caps, index can be picked along with the active fund,
07:28 depending on what the situation is.
07:30 And I think within the small caps and active fund.
07:32 But both have to be a staggered approach.
07:35 Some investors fall in for the resets, they buy,
07:38 they want to make those returns, 70%, 80% returns very, very quickly.
07:43 What we've seen, the micro cap index is up 70% here today.
07:46 So I think a staggered approach and the patience is so important overall.
07:50 - Now, so we'll come to that approach in just a bit on what exactly that approach should be.
07:55 But I just want to talk about what's been happening.
07:57 Just for some context setting here.
07:59 And Hemant, let me come to you on that.
08:01 The volume of inflows in small cap, mid cap, micro cap funds,
08:07 and that realization that there is great opportunity here is clearly grown.
08:12 We've had in the last few months, a slew of AMCs that have said no more lump sum investments.
08:18 They've got too much cash sitting with them.
08:20 And they're wondering what to do with it.
08:23 Put that into context for us, Hemant.
08:26 That has the appetite sort of outgrown the opportunity or is there much more left?
08:32 - Most of them, I think there are a couple of important aspects we need to see.
08:36 One is that before this rally began in mid cap and small cap,
08:40 where was the action?
08:41 The action was more in the large caps, obviously in those kind of situation,
08:45 the more allocation was going into flexi cap or maybe large cap.
08:49 Second, you just mentioned about some of the fund houses have stopped taking lump sum money
08:52 in the small cap specifically, not in the mid cap.
08:55 But I think there are a couple of funds that stopped kind of inflows
08:59 or the lump sum money almost one, one and a half year back.
09:03 So again, I think every fund manager has been looking at it with a different perspective.
09:08 From investors' point of view, like I mentioned earlier, I'll go back to that.
09:13 That if in the past, your allocation to these two segments,
09:17 because let's not forget that these two segments are very important in any equity portfolio.
09:22 As I mentioned earlier, I think both these segments have the potential to deliver higher return.
09:26 And what we're seeing also is that not many investors are now going directly into the large
09:31 cap. They're all actually opting for flexi cap because there is some flexibility of
09:35 having some allocation to mid and small cap.
09:38 So clearly, as long as an investor, you felt that there was
09:43 that exposure to these two segments were not as much as it should have been.
09:46 And you've been increasing that, or even for a new investor.
09:50 Again, if you're allocating money to these two segments in line with your risk profile,
09:55 I think there is no issue at all.
09:57 Every fund house has been taking money from SIP.
10:01 That's what I said that through SIP,
10:03 they clearly defined time horizon.
10:07 You can definitely continue and there will be this volatility will end after sometime,
10:12 maybe you will see volatility again.
10:14 That's something which is going to happen time and again.
10:16 So I don't think investors need to really focus too much on that.
10:19 Let me just take that question to Praveen as well.
10:22 And the point was that appetite versus opportunity.
10:26 How do you see that setting in?
10:29 Clearly, investors are looking at the space.
10:31 They have that risk appetite.
10:33 But our fund managers deploying their capital in an efficient enough manner.
10:41 Are there enough ideas out there?
10:42 Absolutely, Tamanna.
10:47 The first part of your question, the alignment of your risk appetite.
10:51 And if actually investors do have the risk appetite,
10:53 I feel that there will be 50% of them who have also fallen in for the trap
10:57 where they don't look at the past returns and start investing.
11:02 Because making money in the stock markets involves a lot of patience
11:05 and it's a long term time period that you have to give.
11:10 And it's very, very important.
11:12 If we just look at from 2016, how the Nifty 50, Mid Cap 150 and 250 indices have worked.
11:19 Since 2016, they were up for two years.
11:25 Let's take the small cap index.
11:27 It was up in 2016 and '17.
11:29 It fell very badly in 2018 and '19, down by 26 and 10%.
11:35 When Nifty was doing perfectly fine, it was up in '20 and '21.
11:41 '22, again, it was down by 3.65%.
11:43 And of course, we've seen a decent value 25% this year.
11:48 So with small caps, especially, it will not be that the returns are coming in a smoother fashion.
11:55 So investors, if they have found their money with maybe a bit of the greed element as well,
12:03 I think they'll have to brace for a longer time period that they have to stay put
12:07 to actually reap the returns from the segment.
12:10 And as far as the deployments are concerned, I think what was happening is that too much
12:15 money was coming in too soon within these two segments.
12:18 And I think it was only to enhance the experience of the existing investors and the new investors
12:25 that the wrong allocations are not taken by fund managers.
12:29 They wanted the time.
12:30 That is what we, as an insight, got when we spoke to fund houses, that they're looking
12:35 at the right opportunity to make those additional investments.
12:39 And a lot of them were even holding cash.
12:41 And they do have the option.
12:43 Beyond 65%, they can definitely move into mid and large cap as well.
12:47 So 65% is the minimum that they need to keep for a small cap and the small cap
12:51 and for the mid cap in the respective market segments.
12:54 So and I think now maybe they would actually get that opportunity where they can pick companies
12:58 of their choice.
13:00 And I think if you look at from the last five, seven years, the size of the mid caps and
13:04 the small cap companies has gone up phenomenally.
13:07 So small caps are not those tiny as what they used to be.
13:11 So is the case in the mid caps.
13:13 No, absolutely.
13:14 That's a fair point.
13:16 I'm just going to do a follow up with Praveen.
13:19 You talked about being nimble and you talked about the greed factor.
13:23 So with that greed factor, of course, comes higher risk.
13:26 Is this the time to be a little nimble?
13:30 Or should this be a sort of shut your eyes, trust the process kind of an approach?
13:35 I think for a retail investor, you have to go with the process, Tapannaam.
13:42 Because let's say even if you take a higher allocation, how big is it going to be?
13:48 And you have to, I think, goal setting and investing for your financial goals and achievement
13:54 of those financial goals is the primary motive for majority of the retail investors.
13:58 And I think that is the best way to invest because you know, this is my time horizon.
14:04 This is where I want to reach.
14:05 And that automatically sort of sets your risk appetite also if you're not very sure about it.
14:10 So I think going and trusting the process is much more important.
14:14 And the journey in equities is never linear.
14:16 It will be nonlinear and you have to, I think, grace for those ups and downs which are going
14:22 to be there in the markets.
14:24 So but yes, any opportunity, I think, let's say a 4% or a 5% fall further from here,
14:30 definitely a bit of a switch can be done into the segment which you like.
14:35 What would you advise, Hemant?
14:38 Shut your eyes and trust the process or a bit of a wait and watch right now?
14:43 Because I don't think anyone's in a position to say that most of the volatility is behind us.
14:49 No, I agree with you.
14:51 Like I mentioned earlier, I think we've seen the volatility now.
14:53 We'll see the volatility even in the future for different reasons.
14:56 But I think there are two ways how the retail investors are taking exposure to these two
14:59 segments.
15:00 One is to invest in funds which are investing exclusively in each of these segments.
15:06 And the second is there are different categories of fund like large and mid cap and the multi cap.
15:10 The multi cap invests minimum 25% in each of the segment and the remaining 25% it's
15:15 at the discretion of the fund manager where he or she sees the opportunity.
15:19 So I think a lot of investors have been taking exposure to these segments through these two
15:23 funds.
15:23 And what happens there is that there is an automatic rebalancing that happens from the
15:28 fund manager.
15:29 It becomes very difficult or can be tedious for a retail investor to invest in funds which
15:34 are exclusively investing in each segment and then looking to rebalance it or even reallocate
15:39 some more money whenever the opportunity arises.
15:42 But I think when you're investing through these, the combination of these two categories
15:45 of fund that I mentioned, there is a rebalancing which is happening from the fund manager side.
15:50 Yes, if you feel that there is time that you need to allocate more to equity, automatically
15:54 the money goes into a different segment.
15:56 So I think that is a better approach.
15:58 It's a more practical approach for a retail investor rather than trying to kind of, you
16:02 know, time into perfection in terms of rebalancing it in terms of exposure to different market
16:08 segments.
16:08 Now, having said that, the fact of the matter is that small cap funds and mid cap funds
16:14 have performed well.
16:16 There is a lot of excitement about it.
16:18 So let's get some pics of their best performing funds or their favorites from our experts
16:25 on the show today.
16:26 Praveen, we'll go with you first.
16:28 So in the mid caps, Tanana, like I mentioned, I like the index strategy as well.
16:34 It is great for investors who have a very long time, you know, view because the divergence
16:40 is really huge within the mid caps as well in terms of returns.
16:44 And I think the scope for outperformance is gradually reducing.
16:48 So the Nifty mid cap, 115 index fund can be a good choice.
16:52 It's available through four, five fund houses.
16:54 Within the active space, I like SBI mid cap and I like Mireya as well.
17:00 And within the small caps, I think Tata and Nippon, I think these two are decent strategies,
17:06 but it comes with a disclaimer that investors must do their own due diligence.
17:10 So it's not an advice to just go ahead and invest.
17:13 Absolutely.
17:14 That, we should say, is a standard sort of caution note.
17:18 You must do your due diligence, even though, of course, these experts are giving you their
17:22 view.
17:23 But, you know, check with your own personal finance advisor, do all of that math before
17:28 you deploy your money.
17:29 What would you say, Hemal?
17:30 Well, Tamanna, if you're looking at basically actively managed fund in both these segments,
17:36 of course, there is an option always to, you know, kind of have a combination of index
17:41 and active fund.
17:42 But my recommendation as far as actively managed mid cap funds are concerned, the three funds
17:49 that I would like to recommend is Motilal Goswal mid cap fund, STFC mid cap opportunity
17:54 fund and Kota Commerging Equity.
17:57 And in the small cap space, Nippon India small cap fund, small cap and STFC small cap.
18:02 All right.
18:05 So that was the advice with the usual disclaimers that you must do your own due diligence to
18:10 your own homework before you go in and put in your money.
18:13 But I think safe to say, and last word here, that mid cap and small cap are going to continue
18:19 to be flavor of the season for the rest of the year, Hemal?
18:21 Well, I think so.
18:24 I definitely think so, because like I mentioned, both these segments have the potential to
18:29 deliver a good return.
18:30 And as long as investors know in what proportion they have it, as per their risk profile, I
18:35 think they will continue to put money and we will see that with maybe higher volatility,
18:39 but I'm sure they will continue to go up.
18:42 What is the apt proportion in your view, Praveen?
18:44 So if you look at somebody who has a 10 year, you know, horizon, at least Tamanna, then
18:53 I feel that with a slightly higher risk appetite, I think your core has to be large and mid
19:00 caps.
19:01 So if you're just dividing between the three, then I would say it's about a 40% large cap
19:08 and 40% mid, and I would give 20% to small caps.
19:11 Okay.
19:13 Thank you so much, Hemant and Praveen, for joining us on the show today.
19:17 And thank you to all of your viewers who have tuned in today.
19:21 Of course, for more on the mutual fund industry and all the top business stories, do go to
19:26 our website.
19:27 Thank you for watching.
19:35 Bye.
19:36 [BLANK_AUDIO]
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