Predicting that moment is a risky game, but one seasoned fund manager seems to have some insight on it. He believes all one needs to do is keep track of how inflation behaves in the US.
“When inflation returns in the US, that is when the bull market can end. You have to be watchful of inflation in the west. Right now they do not seem to be bothered at all, but that will be very important sometime in the future,” says S Naren, Chief Investment Officer at ICICI Prudential Mutual Fund.
Trying to second-guess which sector can outperform in the next three years, the Dalal Street veteran said he has been betting on power utilities, but that has not delivered yet.
“I believe that power demand has to go up. This sector is trading very cheap right now. It has good scope to go on, because it is a sector without which we cannot live – just like telecom and pharma,” he said at the launch of ICICI Prudential AMC’s Business Cycle Fund.
The infrastructure sector is another one where he believes one can look to do SIP investment. “If you are an investor capable of taking out money, you can invest in infrastructure. As long as the dollar-weakening trend continues, infrastructure will do well. But when this trend turns, it does not do well,” he said.
Naren said the velocity of the stocks rally post March slump surprised him and his strategy of being cautious proved wrong.
“In June-July, I was cautious. I said there was this problem on the credit fund. The market has already rallied. Maybe, it will take a breather now. I went completely wrong, because the amount of liquidity that central banks put in was significant. I was positive in March to May; I could have been more positive in June-July,” he said.
Time to move your SIP
With most mutual fund portfolios delivering positive returns, many investors have started redeeming their investment as is evident from the massive outflows from equity funds in recent months.
Naren said people should continue to do so, but move that to safer domains. He suggested moving to some defensives funds as the risk has heightened in the market.
“I will say something controversial here: all of you should start wondering about how you are going to handle your accumulated SIPs. In my opinion, at every 500 points move in the Nifty, it makes sense to move your accumulated SIPs to a safer product, such as an asset allocator or balanced advantage fund,” he said.
Naren said if one is starting an SIP now, then that should also be in such ‘safer’ funds. Dynamic asset allocation or balanced advantage funds are hybrid funds, which are free to manage their exposure to equity and debt instruments and even gold without any cap or minimum exposure limits.
Since July, equity-oriented mutual funds have witnessed a net outflow of Rs 22,500 crore, as per a Morningstar report. In November, the segment witnessed a net outflow of Rs 12,917.36, Amfi said.
Markets are boring
Naren thinks markets are very boring at this moment, as they are going in just one direction. “Markets are boring if there are no corrections. We have not seen a 10 per cent drop in any stock, let alone the indices for the last few months.”