The Mutual Fund Show: What To Learn From The Year Gone By About Investing In Samvat 2078

Aashish Somaiyaa and Kalpen Parekh on their learnings and surprises in Samvat 2077 and advice for Samvat 2078.

<div class="paragraphs"><p>A woman lights candles on a floral decoration during a special session for Diwali. (Photographer: Prashanth Vishwanathan/ Bloomberg News)</p></div>
A woman lights candles on a floral decoration during a special session for Diwali. (Photographer: Prashanth Vishwanathan/ Bloomberg News)

As a bountiful Samvat 2077 draws to a close, a key advice is to stay invested and take advantage of the inevitable corrections that the markets will face.

“Equities are for optimists. If one stays invested and believes in human ingenuity, markets will deliver,” Aashish Somaiyaa, chief executive officer at White Oak Capital Management, said on the special Diwali edition of BloombergQuint’s The Mutual Fund Show. “One has to stay invested, but be judicious and see where growth is coming in. Last few days have been a sea of red, but corrections are inevitable. One will be tempted to bail out many times in the next Samvat but one should stick by for returns.”

Kalpen Parekh, CEO at DSP Mutual Fund, agreed. “Markets fluctuate. One must take advantage of them, instead of getting penalised by them. If we know the drivers and turning points, we can take advantage of them,” he said on the same show.

“Investing in markets is not a game of T20 cricket, but rather a Test match. It’s very important to survive. And in investing, what helps is diversification across asset classes. That’s been the big learning,” he said. “Stay away from watching prices every day.”

The Mutual Fund Show: What To Learn From The Year Gone By About Investing In Samvat 2078
The Mutual Fund Show: What To Learn From The Year Gone By About Investing In Samvat 2078

The Biggest Surprise

For Parekh, the biggest surprise in Samvat 2077 was the “massive resilience” that corporate India displayed. “The way we saw companies realigning business models, cutting expenses and doing whatever it takes to continue to grow, was great. Investors at large didn’t lose their goal and kept faith in their asset classes.”

According to Somaiyaa, it was the boom in retail participation.

“Ironically, those who haven’t ever been in the markets did well compared to those who have been here for two-three cycles or even decades," he said. "For them, some of the past bad experiences were of long-drawn bear cycles. If you're really informed or coloured by some of your past experiences, I think that worked out to being a bit of a disadvantage.”

Besides, acceleration in digital adoption with respect to capital markets and otherwise was significant, Somaiyaa said. “A lot of these things have changed forever. We aren’t going back to pre-Covid versions of them. They also got accelerated due to the pandemic.”

Watch The Diwali Special Mutual Fund Show here:

Here are the edited excerpts from the interview:

Aashish, the most important learning for you from the Samvat gone by, and why?

AASHISH SOMAIYAA: I think that the last one year in fact I read it somewhere that equities are for optimists. I think that was one of the biggest things which one realised because 2020 usually in fact I wrote it somewhere, that generally speaking when you talk to analysts or portfolio managers they tell you that there is a bear case, there is a bull case and there is the base case, but somewhere in 2020 it was only that ‘the world will come to an end’ case or ‘the world will not come to an end’ case. So, at one point in time the market started believing that human beings are the next dinosaurs. So, I think if you really think that the world is going to come to an end, and then I don't think this is the right place for you. I think equities are for optimists that is what is the key learning that if you stay invested, and if you believe in human ingenuity, I think eventually you will come through.

Kalpen, what was your most important learning?

KALPEN PAREKH: I will make a statement which we actually use very extensively in all our marketing campaigns and we had come up with very large voting campaigns also. My learning for the last year was markets fluctuate and as investors, we should take advantage of them rather than getting penalised by these fluctuations. So, ups and downs are a part of the game, they are the rules of the game and if we know them well, if we know what the drivers and turning points are we can take appropriate advantage of these fluctuations.

Kalpen, in the Samvat gone by, what was the thing that surprised you the most?

KALPEN PAREKH: think it was not so very easy to remain optimistic in March and April last year, looking at how the health crisis was unfolding and mapping into an economic crisis, and what really positively surprised me was the massive resilience of good companies and corporate India because ultimately that matters to us when we are putting our money to work. The way we saw over the course of the year companies responded with a smart realignment of business models, bringing down expenses and doing whatever it takes to continue to grow and find solutions to do that. It was something which was an extremely positive surprise. With our own business, we had made a certain budget estimate in the June board meeting and by the time we hit December, the numbers are very different and much higher than the estimates. So, I think the world is coming back and more importantly companies are responding to that very positively was a strong surprise. The second thing was, it was very encouraging that investors at large did not lose their cool. So we all were nervous, unanimously investors around the country were nervous about likely to happen, what will happen, a personal cash flow issues, market volatility, yet I think a large part of investors kept faith in the asset class, and continued to invest. Some of them who were smarter enough added more taking advantage of this fluctuations, but net-net we saw the continuity in investment plans, a continuity in SIPs, we saw more money coming in disciplined products like asset allocation and I think to me that was a very strong reinforcement that a lot of our investors are maturing and taking advantage of these fluctuations to fulfil their long-term goals.

Aashish, I believe you thought as well that the retail participants surprise you the most?

AASHISH SOMAIYAA: Frankly, it is quite ironic but I observed that people who have been in the market for two, three cycles, and maybe two, three decades even, I think for them you know some of the past bad experiences have long-drawn bear cycles, I think, if you're really informed or coloured by some of your past experiences, I think that worked out to being a bit of a disadvantage. Whereas for a lot of the people for whom it was uncharted territory, I think they kind of did it slightly better. So that was one of the key things. The second thing is that clearly, everything we keep looking at, we think what was pre-Covid and what is post-Covid. We start thinking that these are cycles and in many aspects we will go back to pre-Covid etc. but I think with digital adaption and as digital adaption it applies to capital markets, capital market adaption in general, I think a lot of these things have changed forever. I don't think we are going to go back to a pre-Covid kind of a scenario when it comes to these things. It was a long trend, it got significantly accelerated. If we look around ourselves even my mom is 70 but I think she's got to ordering these food deliveries and the books and stuff. We see youngsters all of them adapting to capital markets because of digital interfaces. I think some of these things have changed, it is now forever it's a significant change. I don't think we are going back on this.

Aashish, what is the biggest do and don't for the upcoming Samvat?

AASHISH SOMAIYAA: Easy returns are out of the way, very clearly. In the hindsight now we know that we got a vaccine in six months as opposed to the thinking that vaccines take 5 to 10 years, and we have vaccinated 1 crore people. Thankfully, and as of yet no sign of a real third wave in India, I hope I haven't spoken too soon but what I would say is that the easy money is out of the way, very clearly. We are not in any undervalued or kind of screaming by a kind of scenario. Now it's more about being judicious and seeing where the growth is coming in and how companies and businesses are doing from here on. But that said, I think one has to stay invested, because recently somebody put out very interesting data that even if you think that economically and cyclically you are up for a good phase, still the best of market conditions have multiple corrections. Like you know the point in time when we are talking about this, the last few days have been a sea of red as far as small and mid-caps are concerned. I think these are things which will happen even amidst a bull market, there'll be many temptations to bail out in the next year or so, but I would still say that people who stay invested, are likely to fare much better than people who have this urge to react to every market development.

Kalpen, the biggest do and don't?

KALPEN PAREKH: My big learning, always, and more so got reinforced in 2020 is that investing is not 20-20, investing is a test match. So, it's very important to survive. It's very important to last long and what really helps survival is diversification across asset classes, asset classes which don't move together in the same direction, every time. So, diversification across asset classes is a very important learning that I would keep for life, and I will give you a live example. On March 23, last year when stocks were tanking and were down 40% from their peak, knowing that you have 20, 30-40% in fixed income, gives you the comfort to say that even if this correction were to last for longer, I don't have to dip into this asset pool because I have my fixed income goals which will live through the next two or three years. So even if there is a long run bear market, there is a fixed income component to take care of that. So, to me, asset allocation and diversification is a very strong do. From a don’t perspective, again, I would say that the more we get digital, the more we are used to constantly touching our gadgets and looking at our portfolio values. The quality of UI, UX provokes us to sometimes press buttons very quickly, move money, switch money, redeem money and stuff like that. I think staying away, having done your investments, knowing that this is a long-term investment journey, stay away from watching asset classes every day. Stay away from watching prices every day. I myself do it very often and try to curb that instinct. I end up sleeping looking at markets outside India, wake up and after some time start looking at Nifty, but at times you realise how does it matter? 20 years from now it wouldn't matter, that what the price in 2021 was. So, stay away from frequency of activity and just bring stillness to your portfolios, it will help a long way in earning superior risk-adjusted returns.

Diversify across asset classes Kalpen, it has also got relevance from an international perspective as well. You look at international markets a lot. You believe people should do that as well increasingly?

KALPEN PAREKH: Absolutely. My take on this is, there are enough companies in the world who are similar or better than Indian companies, in terms of quality, in terms of scale, in terms of the profit pools that they cater to and in terms of the innovation. Finally from an operating matrix, if you sort companies around the world based on ROE and ROCE, earnings growth or valuations, there are easily 50 to 100 companies available outside as well. So, what happens is many times, in short cycles, India will do well and these global companies will not do well, or vice versa. So, this moderately low correlation also helps in better stability of NAV. So if you noticed, last full year, international stocks did relatively better than India and emerging markets. This year so far, I was just seeing since the time we launched the fund which had an international slice, since then, the international slice has underperformed India by 24%. So, India has done well but will I be able to predict, every year, which is going to do well or vice versa? No. So, having a nice blend is very important and I strongly believe t