Small-ticket consumer discretionary sector which have corrected can bounce back. Private banks have seen a sharp correction, and insurance companies should continue to see secular growth.
Investors should rebalance their asset allocation. Wherever the equity component goes down due to the fall in the market, investors should increase their equity exposure while maintaining a balanced allocation, and there can be a slight tilt to large-caps at this time, Mahesh Patil, CIO – Equity, Aditya Birla Sun Life AMC, said in an interview with Moneycontrol’s Kshitij Anand.
Q) It looks like we have formed a base near the swing low of 7,511. What is your take on the market action?
A) Indian equity markets have fallen 30-35 percent from the recent peak in mid-Feb. This is not just on the account of fundamental reasons but also due to high-intensity selling by foreign investors (FIIs) who have sold more than USD 8 billion in the past few weeks.
The sharp sell-off by FIIs is primarily from Quant funds, Hedge funds, Risk parity funds which had grown massively, some on leverage, when global liquidity was easy.
They had to forcefully unwind their positions amidst the high volatility as the VIX index touched record highs.
Also, global ETF flows indicate that investors are adding to positions in markets such as China, Japan, Korea, where COVID-19 has been seemingly peaked while reducing positions in other markets like India where the uncertainty remains.
DIIs, on the other hand, are mostly long-only and hence they would have deployed excess cash as the markets corrected sharply providing an attractive buying opportunity.
While the policy measures taken by our government and RBI came a bit late, they do provide some comfort to investors.
Q) Should investors rejig their asset allocation in these troubled times? If yes, what do you recommend?
A) Yes, investors should rebalance their asset allocation. Wherever the equity component has gone down due to the fall in the market, investors should increase their equity exposure while maintaining a balanced allocation. There can be a slight tilt to large-caps at this time.
Q) After registering a series on series fall of more than 25% in March, what is the sense you are getting for the April series?
A) The large sell-off by FIIs due to increased volatility is largely over. Some amount of selling will continue until we see signs of flattening of the virus infection curve.
The domestic institutional investors (DIIs) on the other hand have seen good inflows in this month till date as investors and asset allocation funds move more money to equities seeing the markets at attractive levels.