The small investor is at a crossroad as the equity markets oscillate. Haresh Soneji spoke to Ved Prakash Chaturvedi, chief executive officer, Tata TD Asset Management Company, which manages Rs2,376 crore of funds under its 15 schemes, on the current market conditions and how small investors should frame their investment strategies.

Global markets are in a correction mode. Do you think the downward movements will be as fast as the upward movement? 

Equity markets, whether in India or globally, are characterised typically with reasonably sharp upward and downward movements in the short term. 

It is always said that in the short term markets reflect sentiment and liquidity but in the long term, markets reflect fundamentals. 

My sense is that the same will be true this time around and after a very rapid upward movement in the equity markets, there would be some pause for consolidation. However, the long-term view of the markets remains positive. 

How do you look at the different factors in the Indian economy?

The Indian economy has been showing several micro-level positives. The growth in certain key sectors such as automobiles, steel, engineering, and pharmaceuticals has been extremely good. 

On the back of this, there has been a confident outlook for these sectors. However, at the macro level, there are various causes for concern, including the fiscal deficit situation. 

All this will weigh on the market. However, on the balance, the market should remain positive in the medium term. Our view is that investors with a medium-term perspective will create value for themselves.

What has been the behaviour of retail investors investing in mutual funds? 

Retail investors have now significantly returned to the Indian equity markets. This is clearly visible in the response that some recent initial public offerings (IPOs) have received. Additionally, fund flows into equity funds from individual investors have increased significantly during the past few months. 

It is always seen that typically the early individual investors enter the market around the middle phase of a rally and possibly this is happening again.

Which category of schemes are investors moving towards and what are the likely reasons for this trend?

One of the key features of this rally is the fact that instead of one sector pulling the market up, there has been a sectoral rotation. Thus, various sectors have led the rally at various points of time. In this backdrop, investors have been investing in diversified equity funds.

What is your advice to small investors who want to invest at this juncture?

The advice to individual investors is very clear. Invest for the long term. Invest continuously and after due diligence. If investors don’t have the benefit of in-depth analysis and an understanding of the market for timing their buy and sell decisions, they should invest through mutual funds.

Investing in stocks or mutual funds continuously over a period of time and for the long term has in the past given rich benefits. Thus, we advice investors to invest only that part of their savings which they can afford to put aside for the long term. Investors should also invest continuously, maybe even every month, a small amount in funds or stocks, thus averaging out the exposures over a period of time. In the medium term, it has been globally proven that equities as an asset class outperform alternative investment avenues.

How should retail investors allocate their savings in these times? 

Small investors have to carefully understand their own risk return appetite. They should only invest that portion in equity markets that can be put aside for a significant length of time. 

This is because in the short term, equity markets would be volatile and react to liquidity and sentiment, which is unpredictable. However, in case investors are investing directly into stocks or bonds, they should carefully analyse the fundamentals of the issuing company before committing themselves. 

Those investors who don’t have a huge risk appetite typically should diversify their holdings across asset classes and even within each asset class. 

They would be well advised to diversify their holding across stocks and mutual funds after careful analysis.