New Year Hold New Promises
The year 2019 started with a lot of promises however, when we are nearing the end of the year, most of the promises of better returns seems to have fizzled out. More than 50 per cent of the equity MF schemes have failed to beat their benchmark. Nevertheless, on a positive note, the performance has been far better than 2018. In the year 2018, almost three quarter of the funds had failed to beat their benchmarks. Going ahead, we will see the situation further improving in the year 2020 and more funds will beat its benchmark. We get this confidence from the encouraging latest high-frequency data, which shows that worst is behind us and economy has troughed out, after the sequential decline in the GDP for the six consecutive quarters (4.5 per cent in Q2FY20). The latest data on IIP, fuel consumption, air traffic, power demand, and monthly auto sales data clearly signals a green shoot appearing in the horizon. It seems that the policy actions taken by the government this year is yielding its result and is likely to play out full in year 2020. In addition to this, the improving global market conditions will further aid the recovery in domestic market.
Does this warrant us to increase our investment exposure to the broader market funds which will benefit most with the turnaround in the economy? Our suggestion is that you should tread carefully. It is better to start increasing your allocation towards broader market now and keep on increasing as and when new data points suggest sustainability of the latest pick up in the economy. Till that time, from an investment perspective, it is good to invest in multi-cap funds and keep on shifting to mid-cap and small-cap funds gradually. As this category (multi-cap) of fund, which has the liberty to invest in any market cap stocks, are best positioned to take maximum benefit of improvement in economic condition. It may lift the performance of mid-cap and small-cap stocks. Even if the latest macro-economic data proves to be a false signal, the large-cap exposure of these funds will help to contain the risk if any.
When it comes to debt investment, one of the major lessons that we learned in last one year is that debt investment is not safe. They come out with their own set of risks. With fall in the growth and pause in the key policy rate cuts, short to medium duration fund looks attractive. Investors with a higher risk appetite can also consider high-rated corporate debt funds and accrual strategies.
Happy Investing 2020!
SHASHIKANT