AMC Speak

Life at Sensex 31k: musings of an ace CIO

Sankaran Naren, CIO, ICICI Prudential MF

27th May 2017

Indian equities have been on a roll with the benchmark indices surpassing landmark levels, thanks to strong domestic and global cues. Indian retail investors too taking note of the improving fundamentals made a beeline to the equity markets, mostly through the SIP route, which is a heartening development. However, amidst this exuberance it is imperative to take stock of the market.

Today, markets are no longer cheap. On most market parameters, the market is either fairly valued or is quoting above fair value. This clearly indicates that the safer part of market return is over. In any investing cycle, there are typically three phases - early, mid and end cycle. We are of the view that market is in a mid-cycle - a phase where people will invest even though the market is no longer cheap. From here on to the end cycle, we believe there can be opportunities for the market to make decent returns.

However, over the years, it has been observed that as market head higher, the interest in Indian equities too gain traction. Consequently, all the retail investors who have been second thinking finally enter the market in order to make the most of the rally. At this stage, more than the rally, what is important to watch is the kind of funds one is allocating money to, such that asset allocation is optimally managed. This is because over long term a dynamic asset allocation strategy can be the most important factor for wealth creation.

During euphoric times, an investor tends to look at the past returns and tend to extrapolate it. This can prove to be a harmful strategy thereby investors tends to invest in products which may render an unpleasant investment experience. As an investor, life at 31K is all about being prudent, respecting the arithmetic, rather than being optimistic. It is time to take a hard look at one's portfolio and rebalance it if required. For those who are investing for the first time in the current market, the best category of funds to opt is the dynamic asset allocation category.

By investing in dynamic asset allocation funds, an investor has the opportunity to take exposure to both debt and equity, thereby ensuring exposure to equity while debt renders the much needed cushion to one's investment. As markets may edge higher and turn volatile in the days ahead, such funds can provide pleasant investment experience. And, for those who have an aggressive risk profile, the theme to consider remains infrastructure. SIPs remain the best mode of investing when it comes to wealth creation, so one can continue with their SIPs into core funds. In case of lump sum investments, dynamic asset allocation fund remains the preferred choice.

Keeping in view the current market scenario, we request all the advisors to encourage their respective clients to consider dynamic asset allocation funds when it comes to deploying fresh cash into the equity markets. This will ensure that when market turns volatile, investor interest is protected while delivering better investor experience.

Given that there have been no significant corrections in the last five years, investors may tend to forget that equity markets can correct at any point in time. Therefore, it's best to be stable and not be overweight on any one particular asset class. In such time, it is worthwhile to remember the basic tenants of investing. In a boom invest cautiously, in a bubble aim to reduce risk by profit booking and in a bust invest aggressively. Currently we are in a boom and it is time to consider investing defensively through dynamic asset allocation funds.

ICICI Prudential Mutual funds offer a variety of dynamically managed funds. The details of the same have been provided in the links below…

ICICI Prudential Balanced Advantage Fund

http://wealthforumezine.net/AMCSpeakICICI130517.html#.WSh2ucb-vIU

http://www.wealthforumezine.net/AMCSpeakICICI170916.html#.WSh2WMb-vIU

ICICI Prudential Balanced Fund

http://www.wealthforumezine.net/FundfocusICICI051216.html#.WSh1Jsb-vIU

ICICI Prudential Equity Income Fund

http://www.wealthforumezine.net/FundFocusICICI041116.html#.WSh0Ucb-vIU

ICICI Prudential Dynamic Plan

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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