He believes the current phase of consolidation could eventually give way to a period of stronger returns as domestic fundamentals continue to improve.
Somaiyaa said investors often judge SIPs over periods that are too short, particularly when markets remain flat or decline. According to him, equity returns are rarely distributed evenly over a five-year period, with a large part of the gains typically coming during a 12-24 month window.
Looking ahead, he expects the market to deliver a period of disproportionate gains over the next three to four years. He pointed to improving corporate performance, tax collections and credit offtake, along with relatively better valuations after the recent time correction, as factors supporting the outlook.
“I would be highly confident in the next three to four years there will be one year where you will make disproportionate return because that is always how market has worked.”
Why investors should continue SIPs
Somaiyaa said the current market environment is actually one where SIPs can prove useful. Investors who started their SIPs when markets were near their highs have continued buying units as prices corrected, helping reduce their average purchase cost.
He said stopping an SIP because the market has not delivered returns for two years could defeat the purpose of systematic investing. While a lump-sum investment can work well when markets are near a bottom, SIPs are designed to help investors navigate uncertain and volatile conditions without having to accurately time the market.
He also stressed that SIPs should not be viewed as the only way to invest in mutual funds. Investors looking for a more actively managed approach can consider hybrid funds, where fund managers can rebalance between asset classes depending on valuations and market conditions.Diversification remains important
Beyond equity and SIPs, Somaiyaa highlighted hybrid and mixed-asset funds as options for investors looking to diversify. Such strategies can allocate across equity, gold and fixed income, helping reduce dependence on a single asset class.
He also pointed to REITs and InvITs, which derive their income largely from underlying rental and toll collections, as alternative investment options.
“Investing outside India, investing in hybrid or mixed asset class funds, investing in alternates like retail and InvITs, which are again listed instruments, but they derive bulk of their income from underlying rental or toll collections.”
Somaiyaa’s broader view is that investors should look beyond the recent two-year period when assessing equity market prospects. He said markets can remain range-bound for extended periods even as earnings and cash flows continue to improve.
For the entire discussion, watch the accompanying video
