The Mutual Fund Show: How To Invest When Markets Are At All-Time High
The markets are not in a bubble zone, said Vijay Mantri of JRL Money.
With markets hitting all-time highs, investors may be wondering if it is the right time to invest or should they wait for a correction.
According to Vijay Mantri, co-founder and chief investment strategist at JRL Money, the markets are not in a bubble zone and a significant correction is not anticipated.
Although a market at 19,200 might appear overvalued, waiting for it to decline to 18,000 or 17,000 before investing may be a more viable strategy, Mantri told BQ Prime's Niraj Shah.
Mantri highlighted the performance of the Nifty, which surpassed 18,000 in October-November 2021 but corrected to 15,500 by June-July 2022.
He advised disciplined investors to withdraw funds based on their predetermined targets. "...but whatever target you have, start investing at that number, else it is mere theoretical exercise." And this could have a "negative impact on net worth", he said.
Market Outlook
Over the past decade, equity markets have yielded a return of 2.5 times, which is lower as compared with long-term averages and India's GDP growth, he said.
According to him, the current market in 2023 differs from those in 1990, 2002, or 2008.
Mantri doesn't expect a correction beyond the "normal" range of 5-20%. "If any investor is scared of investing whenever the market is correcting, put money because the long-term journey of the India story is much longer and much bigger," he said.
Designing The Ideal Portfolio
Investors should opt for debt options considering their cash flow requirements over the next three to five years, he said. This could include expenses related to housing or car loans, children's education, and other financial obligations.
Mantri recommended allocating the remaining funds to equity, with a caveat that investors must be prepared to endure temporary losses within the range of 10-20% in the event of a market correction.
He suggested exploring alternative investment options such as equity savings schemes, balanced advantage funds, and multi-asset funds as well.
Watch The Full Video Here:
Edited Excerpts From The Interview:
Most fund managers say that they find it difficult to find value at the current levels. So, is it good to book profits, is it good to stay invested, or is it good to add?
Vijai Mantri: So, it is very important to look at the market from a valuation perspective and why the current market is at this level and what one could learn about what happened in the past maybe 2008, maybe 2000, maybe 1990-92. Investors are concerned because markets are rising and markets are hitting all-time highs almost every day and there is genuine concern in the mind of investors that we have seen these kinds of situations play out in the past as well.
Had we have taken money out when the market was peaking, then perhaps we could have done much better. When the market was coming down, perhaps we could have invested back into the market. So that was the kind of fear people have in their mind and that's the reason that investors are extremely nervous. So, if you allow me, I can run you through what happened in 1992, 2002 and 2008 and why this market in 2023 is very, very different from the market that we witnessed in the last three big rallies, when the market had corrected more than 50%.
So, my submission is very simple. The markets are touching an all-time high, but we do not see a big froth or market in the bubble zone, and we do not see a big correction happening to this market, the way it happened in 1992, 2000 or 2008.
From the perspective of holdings in mutual fund schemes, what should the approach be?
Vijai Mantri: So, my submission is that suppose you take money out from these levels for argument's sake, you believe that 64,000-19,200 is too much then what one should do? Take money out and what will you do with the money that you will take out. Will you be waiting for the correction at what level they will come to in 10,000, 18,500, 17,000 13,500 17,500, put that level and hardcode those levels, the market may come to those levels as well.
But on that day, you will not invest because the past track record of most investors suggests that people who wait for corrections end up not investing. If you invested money in the equity market and stayed invested the solution to that is if the market comes down, the NAV of the fund will come down, your valuation will come down. But eventually the market does rise and with the market rise, the portfolio also goes up but the money which you have not invested, there's no solution to that kind of money.
So, it is very easy to say that we will wait for the market to correct, and we will invest at that time. But it's very hard to do that because a 19,200 market may look overvalued but suppose you want to go to 18,000 or 17,000 and want to invest at that time, the market may see those level in future, but the news flow will not be of 19,200, the news flow would be of 17,000.
We have seen the Nifty hitting 18,000 plus 600 numbers in October-November 2021 and the market corrected to 15,500 in June-July 2022. I do not think many investors were investing at that time because at 15,500 the news flow was of 15,500 and not of 19,000. So, keep that thing in mind. If you are disciplined enough, take money out but whatever target you have, start investing at that number else it is just that mere theoretical exercise, which has on the contrary a negative impact on the net worth.
How do you design the ideal portfolio for somebody who's an existing investor and wants to move or somebody who's just putting in fresh money to work currently?
Vijai Mantri: So, my submission to any kind of investor is first look at your asset allocation, how much money you would like to put in equities and how to judge and adjust that to the various formulas people will give you. But ultimately, it is up to an average individual to figure it out.
Formula is that you look at the next three to five years of your cash flow needs, your EMI, your housing loan, your car loan, and expenses, kids’ education, whatever it could be. That money has to be invested in debt and only debt option, beyond that the rest of the money needs to go in equity, that is condition number one.
Condition number two, however, the allocation to the equity needs to be tempered with the fact that the equity market may go down and 10-15-20% from these levels at any point of time. So, invest that kind of money on which you are comfortable having temporary losses of 10 to 20%. Only that kind of money will need to be put into your equity fund, else there are alternatives available.
You may look at investing in equity savings schemes, investors may look at investing in balanced advantage fund and multi-asset fund and in all these three categories, the allocation to equity varies from 10% to maybe 65% to 70% depending on their ability to absorb temporary losses, they should look at investing that way.
This is a one part, second part however I forgot to mention, but it's very important to know that this market of 2023 is not the market of 1992 and 2002 and 2008.
We can just wrap it with the point that you were trying to make about how this market is slightly different from what the previous markets were.
Vijai Mantri: Investors need to keep in mind that in 1992, the one-year return of the equity market was 97%. The three-year return was close to 5.5 times, five-year return was more than 7 times, and 10-year return of equities in 1992 was 16-17 times, that was 1992 and it was a scam-driven rally, no big institution participated in that time except LIC.
If you look at the year 2000, it was the market completely driven by TMT and what kind of return the mutual fund delivered. The average mutual fund return for one year was 73%. The three-year return was more than 300%. In February 2000, the return of many mutual funds was more than 3.5 to 4 times. In fact, Franklin India Templeton technology fund delivered 4.5 times return in one year's time. So that was the year 2000.
If you look at 2008 what kind of return equity mutual funds delivered in 2008. In 2008, the preceding five-year return in equity mutual funds was 50% CAGR, it means the NAV went up eight times. The 10-year return was 34% CAGR, the NAV went up 16 to 17 times. If you look at the current return, the last five years, the CAGR is 1,236 of Nifty and in the last 10 years, the CAGR is 12.5 %.
Basically, what has happened in the last 10 years, equity market has given it 2.5 times money, which actually is much lower than long-term averages and also lower than absolute expansion in the India’s GDP. So, if you see from any parameter, this market of 2023 is not of 1990, 2002 or 2008.
So, we do not see big corrections happening in this market, 5-10-15-20% market correction is what is normal. I don't think anything beyond that is happening and if any investor is scared of investing whenever the market is correcting, put money because the long-term journey of India story is much longer and much bigger.
