Investors who began investing post the Covid-19 market crash in 2020, may have thought equity markets can only go up and scale new peaks. However, in the last few months, volatility has surged, and benchmark indices have corrected 10 to 12 per cent amid slowing economic growth and huge pullout by foreign institutional investors over uncertainties surrounding the trade policies of new US President Donald Trump.
Nikhil Rungta, the co-chief investment officer (equity) at LIC Mutual Fund, feels markets could remain volatile over the next four years, with Trump making some or the other statement every other week. From the current levels, however, he is not expecting any big move, up or down in the market in the near term.
In a volatile market that we are in, stock picking is becoming increasingly important, Rungta tells THE WEEK.
"Everyone agrees that India is in a bull market. But it has three phases. The first phase is when everything moves. The second phase is when your sectors or themes run, what we saw in the past three years. The third phase, and the one we are in, is when your stock-specific movement happens, your index may not go anywhere. And who will win in this type of market? The one who focuses a lot on research," he points out.
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Notably, from at least a 5 to 7-year perspective, he remains more upbeat on smallcaps, contrary to the usual belief that large caps tend to be safer than small and midcaps in times of uncertainty.
Even at 40, he says, almost 60 per cent of the equity exposure could be in mid and smallcaps.
"In large cap, we have 100 companies today. In midcap, we have 150 companies. Every fund, every scheme is invested in those 100 or 150 scrips. How can I make alpha in those scrips where everyone is invested? All your new emerging themes, new ideas, incremental companies are coming in smallcap, which are 4,847 companies today," explains Rungta.
For investors, especially those who are worried about volatility, hybrid or multi-asset allocation funds (MAAF) can be a good option. MAAF typically invests in a mix of equity, debt, and precious commodities like gold and silver.
While these funds may not give the highest returns when markets are rising, they also considerably cap the downside when markets are falling. MAAF typically tend to have lower volatility than pure equity funds.
"MAAF are significantly giving stable returns. Three-year rolling data shows we are capturing 90 per cent of the upside. And on the downside or number of negative instances, out of 3,300 samples, while equity was negative for 123 times, multi-asset was negative for 3 times," noted Rungta.
He says every investor should have 40-45 per cent of the total investment in asset allocation funds like MAAF or balanced advantage funds.
Stock picking is key
"We are trying to go as micro as possible, like in pharma, we are bullish, but we are more bullish on the CDMO (contract development and manufacturing organisation) side," he said.
Similarly, while he is bullish on IT (information technology), he is more bullish on the AI and automation side compared to the traditional IT players. In infrastructure, the fund house is more bullish on the water infrastructure theme.
LIC MF is launching its multi-asset allocation fund, which will open for subscription from January 24.
"The multi-asset allocation funds are increasingly getting popular as it reduces the concentration risks and ensures better diversification of assets," said RK Jha, MD and CEO of LIC MF.
Hybrid funds have seen their assets under management rise 27 per cent from Rs 6.90 lakh crore in January 2024 to Rs 8.77 lakh crore in November, he cited data from the Association of Mutual Funds of India.