Markets

‘It makes sense to buy India’s best businesses at current valuations’

Vinay Kamath | Updated on April 03, 2020

Anand Radhakrishnan, Managing Director & Chief Investment Officer – Emerging Markets Equity - India, Franklin Templeton India, says blue chip businesses have corrected meaningfully and they are better geared to tide over the volatile economic situation. In this market, there are good picks to be had for the brave investor. Speaking to BusinessLine, he says the bulk of investors in Franklin’s funds have remained invested, and it’s a wise decision. He advises investors to diversify their holdings to include debt and liquid funds. excerpts:

What are you advising investors in these volatile times? Of course, many MF chiefs are advising to stay invested with SIPs, but what else can a small investor do in these times?

The steep fall in stock prices would have led to meaningful erosion in the equity portfolio of many investors. It is very normal to get upset or anxious about the portfolio. In such times, it is important to remember that (a) equity is only part of our asset allocation, and perhaps the most volatile one. There are less volatile assets like fixed income, gold, etc which would buffer the shock, and (b) after bad times come good times, and it is important to be positive and stay on course of your long-term financial goals and asset allocation plan.

How are different categories of retail investors reacting to this whole crisis? What are the different behaviours that you are seeing?

The reaction is mixed. Typically, high net worth individuals try to be dynamic and move rapidly depending on economic and sentiment directions. Some of them have redeemed earlier and perhaps are re-entering gradually or are waiting for the current situation to play out. The salaried retail class has generally exhibited either of the behaviour of continuing with their SIPs and some choosing to not renew their SIPs or terminating them.

Are people stopping SIPs to create emergency funds?

In volatile times, staying liquid is the primary goal of many investors, and hence, some who have higher exposure to the equity asset class, have been redeeming to shore up their liquidity. Some do take a break in SIP to tide over near-term needs.

Are people redeeming their MFs or investing in this crisis?

Net of redemptions, investors are still investing in equities if one were to take a full view of the system. Individual players may face inflows or outflows (in mutual funds, ULIPs, etc), but overall, there have not been any meaningful redemptions as a whole. The sudden steep fall in equity prices may play on the minds of investors. A bulk of our investors (90 per cent-plus) choose to remain invested and that is a sound decision.

Is it a good time to invest in small-/mid- or large-caps?

Blue chip businesses have corrected meaningfully and they are better geared to tide over the volatile economic situation. Hence, it makes a lot of sense to first direct one’s investments in buying the best businesses available in India at moderate valuations. Needless to say, correction is steeper in mid- and small-cap segments and one can allocate systematically in that class. But lump sum, I believe, is better directed towards large-cap blue chips. Multi-cap funds that have a good mix of large, mid and small are the next best option.

When do you expect to see a turnaround or will markets keep plunging further?

The initial reaction is always the steepest, during any crisis. Markets tend to undershoot, and in general, in a non-discriminatory way, i.e. good and mediocre businesses all correct more or less the same. The more liquid the stock is, the higher might be the correction in some cases. However, as days go by, and many governments mount an effective defense against the Covid-19 pandemic, partially or fully roll-back lockdowns, we will see a gradual normalisation of the market. Especially the stronger businesses with clean balance sheets will bounce back. There may still be further drawdowns, but that will be limited to weak businesses that are finding it tough to cope.

Do you advocate diversification of one's fund holding into debt and other funds?

Definitely! Debt funds provide much-needed stability and income generation for investors and as an asset class is invaluable during such volatile times. High credit funds and liquid funds will help in this regard.

Does Franklin still have a large cash stash to invest now when the market has plunged so much? Or, are most of your funds fully invested?

While we do maintain cash to manage liquidity, in general, we keep it to a minimum. And, in situations like what we have now, where stocks are available 30-40 per cent cheaper, there is no valid reason to keep waiting to deploy funds.

What is a good mix of Franklin (or, in general) funds that one should have in one’s portfolio?

Every investor is different and has unique risk-return needs. Hence, it is generally advisable to consult a financial advisor and tailor-make a portfolio that suits ones needs. FT does have products with long-period track record across various risk categories, and hence, one can easily create an optimal mix between asset classes and also within the asset class, with some help.

Published on April 03, 2020

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