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NEW DELHI: Atul Bhole, senior vice president-investments at DSP Investment Managers, believes any upheaval in crypto markets would invite volatility in the markets. He spoke to Mint on the need for crypto regulations, China’s Evergrande crisis, and why he is still bullish on equities despite pricey valuations.
Edited Excerpts:
Q. For quite some time, there have been fears of steep correction in the markets. Can China’s Evergrande crisis be the trigger?
Market has seen a sharp rally over the past three to four months and appears to be in the overbought at least from the near term perspective. It would be impossible to predict which event would cause correction and the timing of it as the market is continuing to climb a wall of worries.
While the Evergrande crisis can cause some growth slowdown in China, it may not cause any systemic issues given the Chinese government’s ability and track record of acting swiftly. Commentary and actions of global central banks, particularly the US Federal Reserve, will be the most important events going forward.
Q. The prescribed asset allocation for DSP Flexi Cap Fund is 65-100% equity. But, at present the fund is around 97% equity. Do market conditions warrant trimming equity allocation?
Given the powerful macro-environment developing globally, wherein growth is finally making a comeback along with some degree of inflation, equities as an asset class are in a sweet spot. Ample liquidity and lower interest rates continue to benefit equities as the normalisation of easy monetary policies is likely to be very gradual. In India’s case too, all drivers of the economy ie exports, infrastructure, real estate, and finally consumption are ready to fire. We, fortunately, have many good businesses across these themes run by very capable managements to buy and stay invested in. All our focus is on the right stock selection than taking market calls which proves to be futile most of the time.
Q. What will be the impact of demand for the passive style of investment on the mutual fund industry?
Passive investing has got its own merits in terms of following index neutrality and low fees. Its proportion in the overall assets under management (AUM) can definitely go up. However, we see that the growth in overall AUM itself would be pretty strong, and active investments still forming a major part of it. Any style of investing does better than other in the particular market set up. Over the past few years, growth has been subdued and few larger corporates have done well, which benefitted passive investing. As we are about to enter a broad-based growth phase again, active managers have the opportunity to generate alpha exploiting their stock selection ability.
Q. If a new investor is coming to the market with ₹1 lakh in hand, what should be his or her strategy?
Our view on the market is sanguine even at these levels. The macro situation is favourable and getting better. This would certainly reflect in corporate earnings growth going ahead. We would advise investors to stick to their current asset allocation and stay invested rather than tweaking according to market level. If the allocation pattern requires investment in equity, the investor can go for fulfilling it in one go or over the next three-six months through a systematic transfer plan (STP) way. It is very important to bear in mind that post such a breakneck rally, a repeat cannot be expected in the near term and investment needs to be a period of more than five-seven years to expect decent returns from these levels.
Q. What was the reason behind the launch of the old fund offering of DSP Flexi Cap Fund?
We wanted to highlight the scheme wherein we are providing clarity on the way the fund is managed, the stock selection framework etc. Investors can also check the existing portfolio and track record. In the flurry of new fund offers (NFOs), we thought this ‘known devil’ would serve as a better solution to investors particularly when many are worrying about the sharp rally and expensive valuations. We have a constructive view on the market and as the market is continuing its upward journey climbing many walls of worries, investing in a ready ongoing portfolio, which is participating in the upmove can serve the purpose better than building a new portfolio over a period of time.
Q. Do you see any impact on the mutual fund industry from cryptocurrencies getting regulated as an asset or commodity?
Given the kind of money attracted and scale achieved by cryptocurrencies over the past few years, any upheaval in this class would invite volatility in the markets. If the regulations cause a massive fall in crypto values and wealth destruction, all other assets can see some correction in short term. However, stock prices have underlying businesses backing them unlike crypto and should see a bounce back sooner with allocations getting shifted. It would be better the governments and central banks start regulating cryptocurrencies sooner than later before the bubble gets larger.
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