This is not the right time to get into commodities: A Bala
Synopsis
“One should look at banking sector from an investment angle. One should consider this fall as an opportunity. Stagger investment over a period of next one or two months, Be convinced that this current war probably may not be too long and at the same time, significant price increases can correct as sharply as they have risen once the dust settles down. Finally, one cannot wait for that timing to happen for one to consider investment.”
The steep fall in the market in the last two weeks has created some element of panic for direct equity investors. At the same time, for investors who have been coming through the mutual funds (and we are one), investing has been rising.
Generally we all encourage SIP as an asset class or maybe a step up kind of investing.When the market falls, maybe they should increase allocation towards mutual fund equity schemes. We are also seeing positive responses coming from both the distribution community as well as the investor community. But having said that, it is known generally that a large pool of money has also been coming to the equity market by way of direct participation. Now they also seem to be realising that investing through mutual funds could be a better idea as ultimately asset allocation is the key.
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Lots of new investors have gotten used to the market headed up one way. When they see this meltdown, they will get scared. Sensex is below 53,000, Nifty has given up on 16,000. Stocks like ICICI and Maruti are down 5%, oil is at levels not seen since 2008. What should be the strategy now?
You took some of the names where the price corrections have been quite sharp. A large part of it is bull liquidation which has come from overseas investors. We have seen close to about $14 billion outflows from FIIs. They are selling close to a billion dollars a day. But having said that, significant liquidity is coming from FIIs and banking as a sector is almost 35% of index size and therefore they are taking the brunt of the fall.
The result: one, the Indian market having seen a significant outperformance to the global market in the last one year is getting corrected. The argument that the Indian market is trading at a premium to the longer term valuation, is also getting corrected.
Stocks Recommendations
I think it makes sense to look at hybrid funds. Definitely hybrid funds have got a mix of equity and fixed income which is like a balanced advantage fund or even the balanced fund itself could potentially act as one of the alternatives for investors to capture the momentum in both equity as well as on debt.
But having said that, many conservative investors would not want an equity exposure but at the same are happy with safety and liquidity and even if the return is marginally lower compared to any other instruments, definitely the 10-year bond is now coming close to about 6.8% and probably we are in a rate cycle which could potentially start rising in the next few months given the fact that inflation is very, very high.
This is of course applicable for people who are conservative, who have reasonable exposure to equity and are now looking for a balance in their portfolio. For them, it makes sense. But if someone does not have exposure to equity or maybe have bonds and is thinking about investing in direct equity thinking that they will make more money this way, that investor should look at the mutual fund diversified equity portfolios whether the large cap, multicap or flexi cap, even small cap for that matter from overall point of view. Only debt makes sense for those who are overweight and looking for balance in their portfolio and now it is providing opportunity given the fact the bond yields are pretty higher than the earnings yield of the market itself.
Is this a good time to consider putting cash into commodities at the cost of equities?
It is difficult to say, given the fact that the rise in prices in metals is quite sharp. In the last one week, the rise in prices of Nickel or other commodities has been very, very sharp. This is largely because of the supply constraints and uncertainty in the world and so not much supply has been created while the demand continues to remain muted.
I would probably assume that it is not the right time to look at commodities as a space though it could potentially rise in the short term. Oil is now coming towards $140. It will not be a good idea to look at commodities as an opportunity. If somebody has made an investment it is fine. Somebody will make money. There are no issues but from an investors point of view, absolutely no.