Indian equities may have gone through a difficult phase over the past two years, but retail investors should not lose faith in equities or allow short-term market movements to dictate their investment decisions, according to Asit Bhandarkar, Senior Manager at JM Financial AMC.
Speaking to ET NOW, Bhandarkar said financials remain one of the most attractive sectors in India, with strong credit growth, improving asset quality and reasonable valuations creating opportunities for investors.
“From our perspective, financials continues to be the largest sector,” Bhandarkar said, adding that strong credit growth, asset quality having bottomed out and reasonable valuations provide enough opportunity not only in lending businesses but also across financial services.
According to him, the current economic environment also presents opportunities beyond domestic-facing sectors.
One of the concerns for the Indian economy has been the combination of higher crude oil prices and a weaker rupee.
However, Bhandarkar believes India’s ability to absorb the impact of higher crude prices has improved significantly compared with the previous decade.
“Our ability to bear the hit from higher crude prices is today much, much better than probably what it was in the previous decade,” he said.
At the same time, a weaker rupee could benefit some businesses by improving their export competitiveness.
“On the contrary, there are businesses which are now sort of starting to benefit because of the weaker rupee and the stronger export opportunity,” Bhandarkar said.
He added that the investment opportunity also needs to be viewed in the context of India’s free trade agreements (FTAs).
‘Don’t chase returns’, says Bhandarkar
For retail investors looking at a two-to-three-year investment horizon, Bhandarkar’s message was clear: do not let recent market performance determine where and when to invest.
“Stop chasing returns. Have a very balanced asset allocation,” he said.
Bhandarkar acknowledged that certain segments of the economy can outperform at different points in the cycle, while others may lag. However, investors should not allow those short-term trends to completely alter their asset allocation.
“Certain segments of the economy will do very well at certain points of time. Certain will not. But that should not change your asset allocation,” he said.
His first advice to retail investors is not to lose confidence in equities despite the weak performance seen over the past couple of years.
“My advice to retail investors is first of all don’t lose hope in equities because of very weak performance over last say two years,” he said.
The second, he said, is to maintain a balanced approach and stick to a long-term asset allocation strategy.
“Keep your investment horizons long enough to undergo any volatility that may come,” Bhandarkar said.
Don’t let short-term news drive long-term decisions
Bhandarkar also highlighted what he believes is one of the biggest mistakes retail investors make — extrapolating recent experiences into their future investment decisions.
He said investors often increase their allocation after seeing strong short-term returns and become overly cautious when markets or returns disappoint.
“The whole point that we tend to look at our near-term experiences and extrapolate them into our decision making,” he said.
If near-term returns are high, investors may be tempted to put more money into the market, but Bhandarkar believes that is the wrong approach.
Instead, investors should remain constructive when markets decline or fail to deliver strong returns, particularly when economic fundamentals and earnings are improving.
“We should not chase returns. We should on the contrary be constructive when the market falls or has not given sufficient return especially when it’s in the back of improving economic data and improving earning scenarios,” he said.
What is the biggest mistake investors should avoid?
Bhandarkar said investors need to avoid being carried away by developments on either side of the market cycle.
“Don’t get carried away on either side,” he said, warning investors against allowing near-term economic data, news flow or stock market outperformance to influence their long-term financial planning.
For him, the two major mistakes are essentially opposite sides of the same problem: investors either stay away when they should participate or enter aggressively after returns have already become attractive.
“The mistakes are that you don’t participate because of being negative when you should and mistakes are that you end up chasing returns when they are very positive,” Bhandarkar said.
With geopolitics, currencies and interest rates creating an uncertain global backdrop, Bhandarkar’s broader message is that investors should focus less on predicting every short-term move and more on maintaining discipline.
“Discipline even in this environment is far more useful approach rather than being fearful or being negative about things,” he said.
