Stock markets have been on a slippery slope over the last few months. Amid uncertainties around how the trade policies of incoming US President Donald Trump hurt emerging markets and massive selling by foreign institutional investors, as well as economic growth concerns, the benchmark indices like the BSE Sensex have tumbled over 10 per cent since the life high in September.
The mid and small-cap indices, too, have declined 11 per cent and 9 per cent, respectively.
On Monday, the Sensex was down around 660 points or 0.9 per cent in afternoon trade. The NSE Nifty50 was down around 1 per cent or 226 points.
Amid this turmoil, veteran fund manager S. Naren is batting in favour of hybrid investments and asset allocation (investing across asset classes). The chief investment officer of ICICI Prudential Asset Management, which had close to Rs 8.74 lakh crore in average assets under management in the October-December quarter, maintains India is still in an equity bull market but wants investors to avoid “risky” mid and small-caps in favour of mega and large caps.
“We believe that mid-cap and small-cap are overvalued. Large caps are not cheap at this point in time, but large caps are also not overvalued in a very significant way,” said Naren.
While the long-term story of India continues, he says returns in the near term are likely to be moderate.
“We still believe the return environment in the near-term is still moderate because valuations are still not dirt cheap. We still believe local investor exuberance exists. Our favourite investment opportunity at this point in time is still asset allocation, which means investing in hybrid categories on a lump-sum basis and systematic investment plan in flexible mandates (like flexi cap funds) at this point of time,” Naren said in a media interaction.
According to data from NSDL, amid a massive selling in October and November, foreign portfolio investors (FPI) were net buyers worth just Rs 427 crore in the calendar year 2024, compared with the Rs 1.71 lakh crore they had invested in 2023. In the first ten days of January 2025, FPIs also sold Rs 22,194 crore in Indian equities.
This massive selling amid global trade uncertainties has led to a sharp depreciation in the rupee against the US dollar. On Monday, the rupee touched an all-time low of 86 to the greenback. Naren feels fundamentally there is no problem with the rupee, but the challenge has been around the continued strengthening of the dollar against a basket of currencies.
“You have to remember that the rupee has appreciated against all the currencies except the dollar, and the challenge is that the dollar has appreciated against everything because of the potential from the new US President’s policies. The rupee can depreciate in the near term, but is it a problem for the Indian economy or the Indian rupee? The answer is no, it is a problem of the strength of the dollar,” Naren said.
Is he worried about the current market volatility? The fund manager, who has seen many such cycles over the past few decades, says there was far more risk three to four months back when the market was hitting new highs every day. Amid the current market volatility, Naren is getting more positive on quality as a theme, which had underperformed, as investors had, in turn, flocked to stocks based on alpha and momentum factors.
ICICI Prudential AMC has recently launched the Rural Opportunities Fund. Mass consumption categories have seen a slowdown in the last few quarters as high food prices have pinched consumers’ wallets.
The fund house has typically looked at launching funds in themes that have not done well in the past (in a way, looking to gain from the potential upside turnaround) rather than themes that may have already done well over a period (and thus may have limited upside capabilities).
Naren expects the government to come out with measures to support the rural economy and, therefore, expects the rural theme to do well this year.
He added that it is difficult to predict themes, and therefore, one should always invest with at least a three-to-five-year view.
