Equity Vs Expectations: Why Market Veterans Say Investors Should Look Beyond One-Year Returns
True equity investors must embrace extended periods of stagnation, says Swarup Mohanty of Mirae Asset Investment Managers.
In a market landscape that is increasingly obsessed with immediate gratification, two of the industry’s leading investment voices are sounding a stern warning against 'myopia'.
Swarup Mohanty, vice chairman and chief executive officer of Mirae Asset Investment Managers, and Ashish Gupta, chief investment officer of Axis Mutual Fund, both challenged the validity of the one-year performance review. Both urging investors to realign their expectations with long term value of equity.
The Fallacy of One-Year Review
The conversation opened with a sharp critique of the current investor mindset. Mohanty pointed out that the obsession with annual returns fails the fundamental understanding of the asset class.
"When the topic of discussion is about how people have not made money for one year, it shows that people are not aligned to the underlying being equity," Mohanty observed. He argued that true equity investors must embrace extended periods of stagnation.
"People should not be making money in equity for a year and should not be making money for two or three years also. If they are comfortable with that, they should be equity investors," he said.
Echoing this view, Ashish Gupta emphasised that a single year is a poor measure for success, particularly for more aggressive categories.
"I echo the view that it's not appropriate to look at only the one-year performance. Especially in the small and mid-cap funds, after all that they have been through, the three-year numbers look good," Gupta noted, shifting the focus toward a long-term horizon.
Navigating Underperformance and Cycles
Addressing the recent sluggishness in certain segments, Gupta identified a dual threat of economic pressure and stretched prices.
"Looking into reasons that slowed them down, I see two reasons. One being fundamentals, where we saw a slow down due to fiscal and monetary headwinds in the economy. Adding to this, valuation multiples were also higher, so they underperformed the large caps," said Gupta.
However, looking ahead, he sees a turning tide. "With the pickup in the economy, there is also a pickup in the earnings trajectory for the next year. We see it to be broad-based," he said.
Mohanty added that navigating these shifts is precisely why professional management is essential.
"Cycles change and why you come to a fund manager is to catch these cycles. A solid portfolio will then ride on these cycles and become agnostic to these market movements. That is something that people will learn very harshly in the coming year too," Mohanty noted.
The IPO Paradox
While Mohanty views the influx of new companies as a benefit for portfolio construction, noting that "the choice is not as narrow as earlier for fund managers", he stressed the need for patience.
"We need to give fund managers the time to express their choices and the flexibility," he cautioned.
Gupta offered a diverging view on how this supply affects the broader market.
"We also see that there has been a huge number of IPOs and secondary stake sales. Most of these have come in the mid and small cap space. This also dilutes the returns that come from this asset category," he explained, highlighting how a surge in supply can temporarily weigh down sector performance.
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