July 07 2018
After a linear upside run till Jan 2018, the BSE sensex has corrected 3.85% from a peak of 36,443 on 29/01/2018 to 35,037 on 28/06/2018. The midcap index is down 17% and small cap is significantly down by 22% from January levels.
Since the NDA government came into power in 2014, this is a third correction in the equity markets, and the longest one too.
The earlier two corrections, though they were more severe than the current one, lasted only couple of months and are probably forgotten now. The first major correction was in Jan-Feb 2016(Oil price crisis leading to FII outflow) wherein BSE sensex corrected by 25% from 30,000 to 22,400. The second correction was during Nov-Dec 2016 (the demonetization period) when BSE Sensex corrected 8.5% from 28200 to 25800.
Except for pure large cap funds, most of multicap funds, midcap funds and small cap funds are down from their Jan 2018 values. The same has resulted in lowering of fund values and overall gains in every portfolio.
Even SIPs(Systematic Investment Plans), which are a preferred option for investments in equity mutual funds, have either given nil or negative returns during this period. Due to the markets going down in last five months, even the SIPs which were started one year back have shown hardly any returns.
An Investor’s Dilemma
In the wake of current equity market scenario and portfolio returns, several questions may pop up in investors’ mind. Few of these common questions are
1. Should I have a relook at my equity investments?
2. Is my portfolio good enough or should Iswitch to some other best performing funds?
3. Should I wait for the market to correct more before I make any new investment or start a new SIP?
4. Will I be better off if I withdraw my investments now and reinvest the money later?
5. Above all, are equity mutual fund investments really good enough for me to invest?
Learnings from the Past
Equity markets, like any other market, are prone to short term fluctuations. The fluctuations could be due to several international and domestic factors like global happenings, oil price, politics, demand and supply gap, macro-economic situation and so on. Therefore, the fall in stock prices of good companies with strong businesses over short term doesn’t give a clear picture of overall health of the economy. However, as the time passes, the market recognizes the value of these companies and the stock prices start to move up again, creating wealth for investors. It is not by chance but intrinsic nature of the market that despite 5-50% corrections several times, stock markets in India have delivered more than 15% returns over last 38 years i.e. creating 3.5 crores from one lakh rupee investment.
To illustrate this point, kindly have a look at the returns chart below. As you shall see, despite three corrections in last five years, the equity fund returns across various categories have been quite attractive.
|Fund Name||Category||6 Month's||1 Year||2 Year||3 Year||5 Year|
|ABSL Small Cap Fund||Small Cap||-15.78||1.55||15.76||15.81||25.75|
|Canara Robeco Emerging Equities Fund||Large and Midcap||-7.39||6.49||19.07||14.58||31.11|
|IDFC Focused Equity Fund||Focused Multicap||-4.91||12.1||22.15||11.78||15.74|
|Kotak Emerging Equity Fund||Mid Cap||-10.86||2.92||14.22||12.63||26.83|
|L&T Emerging Business Fund||Small Cap||-13.73||5.72||24.76||21.18||NA|
|Mirae Asset Emerging Bluechip Fund||Large and Midcap||-11.34||3.16||18.74||15.94||30.31|
|Mirae Asset India Equity Fund||Multi Cap||-4.28||8.44||16.92||12.1||21.24|
|Motilal OswalMulticap 35 Fund||Multi Cap||-4.86||8.47||19.12||13.15||NA|
|Principal Emerging Bluechip Fund||Large and Midcap||-9.33||8.47||19.2||14.17||27.15|
|SBI Multicap Fund||Multi Cap||-6.41||7.36||13.28||11.73||20.96|
* 6 month returns are absolute. For one year and above the returns are compounded annualised
** Returns as on 6 July 2018
What should you do?
Almost all equity oriented funds have delivered negative returns in the last six months. There is nothing wrong with the funds that have long outstanding track record. However, due to scheme recategorization in last three months due to SEBI regulations, some mutual fund schemes objective has got changed. We suggest investors to have a relook at these schemes to see if they are still suitable for their investment needs. We at Investguru are reviewing all the portfolios comprising these schemes and making the necessary changes in consultation with the investor.
Investor looking to add fresh lumpsum money to their existing equity investments may do it through SIP/STP mode. A new SIP can be started anytime irrespective of market condition as it is a long term investment and only a small amount shall get invested now
If market volatility is causing concern to the investor, the worst thing to do is withdrawing the investments thinking that they will invest again when the market falls more. There is absolutely no way to know the bottom of the market. As such, when a market upside takes place from a long downtrend, the movement is sharp and quick that makes timing the market almost impossible.
An equity investor, specially who is investing through SIP/STP mode, should be happy to see down market as it gives him opportunity to invest the fresh investments at last year NAVs. More returns are generated by investments that are made in fallen markets, when the news flow is bad and environment looks gloomy.
This is also a test of a true equity investor-whether he is patient enough to let this scenario pass through for a brighter future or the market fluctuations shake him and his faith in equity investments.
Indian equity markets, like any other market, are prone to short term fluctuations. However, the continuous economic development of India ensures that Indian stocks market shall remain in long term uptrend for many decades to come. Investors have the opportunity to create huge wealth over the next 2-3 decades. The short-term downtrend should be seen as an opportunity to invest more and not like a mistake made. The only mistake one should avoid is to remain away from equity investments and miss the growth bus.
As always, your views and feedback on the above are welcome.
Pawan Agrawal is the founder and managing partner of Investguru. You may reach him at firstname.lastname@example.org .