Arun Kejriwal, an independent primary market analyst, told ET Now that the “global uncertainty has shifted investor focus from the secondary market to IPOs, with investors looking at grey-market opportunities and churning capital quickly.”
What does that mean for equity investors? Should they continue to stay on the sidelines or do the current situations lend to buying opportunity?
Akhil Kalluri, VP & Portfolio Manager – India Equities, Templeton Global Investments told ET Now it is the “appropriate time to gradually increase equity allocations”.
He added that some mid- and small-cap stocks have corrected to attractive valuation levels in recent times. Here are edited excerpts:
1. Looking at the recent NFO trend, why are AMCs shifting their focus from pure equity schemes towards hybrid, multi-asset, debt or thematic schemes? Is this a sign of changing investor preferences and needs?
This trend largely reflects the stage of product development at individual AMCs rather than a wholesale change in investor preferences. Most established AMCs already have a comprehensive range of pure equity schemes. Their incremental launches are, therefore, aimed at filling gaps in their product portfolios through multi-asset funds, Specialised Investment Funds, or select thematic offerings. Newer AMCs, on the other hand, are still launching core equity products.
At the same time, the relatively subdued performance of pure equity strategies over the past couple of years has reinforced the importance of asset allocation. This has naturally increased interest in debt, hybrid and multi-asset strategies, which can help investors diversify their portfolios and manage volatility more effectively.
2. Given the current market valuations and earnings growth, is this the right time to make fresh investments in equity funds? Should investors choose a lump-sum investment or continue with SIPs?
The broader market has spent much of the past two years consolidating, reflecting a combination of cyclical weakness in earnings growth, elevated starting valuations and the availability of alternative investment opportunities such as international equities and commodities.
This consolidation has brought the valuations of several high-quality companies (that are facing temporary cyclical headwinds) back to more reasonable levels. For investors with a long-term horizon, the current environment is creating selective opportunities, particularly as earnings growth begins to accelerate. In my view, this is an appropriate time to gradually increase equity allocations.
For mid- and small-cap strategies, SIPs remain the preferred route, as they help investors manage volatility and timing risk. In diversified or broader-market funds, investors may also consider deploying a portion of their capital through a lump-sum investment given where we are in terms of the cycle.
3. What are the top three sectoral themes that look attractive for investing at present?
The first is BFSI, particularly banking and insurance. The banking sector should benefit from the sustained credit growth, which has improved over the past few quarters, along with better margins and continued healthy asset quality. The insurance industry has faced several regulatory changes in recent years, but I believe the worst of the disruption is largely behind us and the business outlook should improve from here. Valuations in both the segments remain reasonable relative to their long-term growth potential.
The second theme is consumer discretionary. While demand at the premium and luxury end has remained resilient, the mass and mass-affluent segments have been affected by elevated inflation, subdued income growth and tighter availability of consumer credit. As these cyclical pressures gradually ease, these categories could see an acceleration in growth over the next few years.
The third area comprises selective, bottom-up opportunities in technology and industrials. Technology stocks have corrected sharply amid concerns about AI-led disruption, creating pockets of value, although stock selection will be critical. Industrials have already experienced a strong rally, but opportunities remain in select sub-segments such as manufacturing, exports, and defence, where medium-term growth prospects continue to look healthy.
4. If an investor has a 3–5 years investment horizon, how should they allocate their money between equity and debt funds in the current market?
For long-term investors, every major asset class — including equity, debt, commodities and, where feasible, international assets — has an important role in diversifying risk and generating healthy risk-adjusted returns across market cycles.
While a three-to-five-year horizon is reasonable, it may not be long enough to justify a disproportionately high equity allocation. I would, therefore, favour a balanced or hybrid approach, combining equity with an appropriate allocation to debt. The debt component can help investors patiently navigate periods of equity-market volatility and use such market fluctuations to potentially increase equity allocations to improve long-term return prospects. Given the current stage of the market cycle, I view current period of volatility as an opportunity to gradually increase exposure to Indian equities, supported by an improving earnings outlook and more reasonable starting valuations.
I believe the current environment presents a reasonable opportunity to revisit small- and mid-cap
equities. While the headline indices have largely consolidated over the past couple of years, the correction beneath the surface has been much sharper, bringing several companies to more attractive valuation levels. This has coincided with an improvement in earnings momentum, particularly among select
mid- and small-cap businesses.
Although headline index valuations may still appear elevated, historical comparisons should be viewed in context, as the investible universe has expanded significantly with the addition of several newly-listed companies. Overall, in my view, the current consolidation provides a reasonable opportunity for long-term investors to gradually increase their exposure to small- and mid-cap strategies.
