Is it right time to enter the market?

Shashikant Singh
/ Categories: Mutual Fund
Is it right time to enter the market?

The performance of the equity market in the last couple of months has led to the improvement in the net asset values (NAVs) of almost all mutual funds. In the last one month, all categories of equity funds have given positive returns except for IT and International funds. The average returns of the infrastructure funds in the last month have been 10.13 per cent, while that of small-cap and mid-cap dedicated funds was at 8.79 per cent and 7.17 per cent, respectively.

One of the reasons for such performance is the huge inflow from foreign funds. FIIs have been pumping money into the Indian equity market like never before. Month till date, FIIs have infused Rs. 6,748 crore against an outflow of Rs. 4,262 crore in January 2019 and inflows of Rs. 17,220 crore in the month of February 2019. Most of these inflows are ETF driven. There seems to be a rotation of funds by the global investors where they are moving out funds from the developed economy to emerging economies like India. In addition to the global factors, the market is also discounting the return of the present government to power following in the general election.

What can stop such inflows and is it right time to invest in small-cap and mid-cap funds?

We have always argued that instead of timing the market you should give time to the market. Therefore, those who would have been waiting for the right time to enter the market might have lost the initial 5-10 per cent gain. Nevertheless, they should enter the market even at the current juncture as we have witnessed historically that election year has been good for the market and hence the MF industry.

We studied movement in the AUMs of the equity fund, six months before the election and six months after the election. It might not be a mere coincidence that just before the election the market starts to rise and continues to gain even after the election. The year 2003 saw the start of one of the greatest Bull Run just before the election of 2004. Similarly, in the year 2008, although market tanked it made a ‘V’ shaped recovery in the following year. Even in the year 2013, we saw the market started to recover and then went on a dream run till January 2018 with minor hiccups here and there.

The following table shows the performance of the equity indices during the election year.

1 Year Ending

Sensex

Mid cap

Small Cap

29-Oct-2004

12%

33%

56%

30-Oct-2009

47%

62%

61%

31-Oct-2014

34%

64%

86%

Hence, even if you had missed the initial gains, you can still buy the funds based on your risk appetite.

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