Investors should avoid knee-jerk reaction: Chandresh Kumar Nigam

Markets have been on a topsy-turvy ride as the uncertainty over the Covid-19 pandemic and subsequent impact on the economy get grimmer. Many first-time mutual fund investors who took to the systematic investment plan (SIP) route on the ‘Mutual Funds Sahi Hai’ campaign are a worried lot. BusinessLine spoke to Chandresh Kumar Nigam, Managing Director and CEO, Axis Asset Management Company, on the way forward. Excerpts:

The Indian equity markets have had a terrible last month as they struggled to react to the developing spread of the coronavirus and the resultant global shutdown. Even after the sell-off, there remains a high degree of uncertainty in terms of how the virus scenario may unfold, as this is a true black swan event and there are no real guides available as reference points to the markets.

Regardless of the path that the virus takes, ultimately it is more of a one-off disruption that the economy will overcome. On a three-to-five-year outlook, we do not expect any lasting damage to the economy or the markets from the current events. It is only fair that such a sudden change in fortunes, combined with negative media headlines, cause people to question their investment decisions. However, we suggest that any knee-jerk reaction at this time should be avoided and instead investors should take a step back to see how things may play out, going forward, to help them take a considered call. For fresh investors, the current market valuations are compelling and we recommend that they start investing on a staggered basis with a three-to-five-year horizon. In equity, we would recommend large and multi-cap category, while in fixed income we would recommend AAA corporate bond-oriented strategies.

From our perspective, we believe that the current situation is more of a health crisis and not a major financial crisis as of now. What happens, going forward, is therefore going to depend on how the virus situation develops. Depending on how long it takes for the situation to normalise, we could be looking at between three and six months of demand disruption, with some sectors getting hit harder than others. However, it is too early to put numbers on the impact at this stage.

Ultimately, such a sharp sell-off will affect all equity funds. However, so far we have seen the better quality portfolios, including our ESG fund, holding up better on a relative basis. Having said that we are still building the portfolio in our ESG fund; so, it is too early to talk about its performance at this stage.

We have loosened investor restrictions in our small cap fund from April 1. Ultimately, we believe that restrictions are important in categories such as small cap, where low liquidity creates significant capacity constraints, but at the same time, we want to encourage investors who want to take advantage of the current compelling valuations of the fund in the current environment.

It is an unusually uncertain time for the global economy. Having said that the market has spent the last 18 months cleaning up some of the credit overhang in the domestic economy. The development has made us much more resilient to face this crisis. Also, we have a supportive regulator and ministry which are trying to soften the shock for the corporates. So, while there can always be individual companies that may get into trouble, at this stage we do not expect any systemic credit issues.

These are challenging times for all of us and all industries are working hard. Within that environment, I believe that the mutual fund industry has done a reasonable job in minimising disruption and allowing investors to manage their portfolios. Of course, we would not be satisfied even if a single investor is not able to get their application processed.

I think, online is the future, and this current situation is only going to make the transition faster. There is no reason why the mutual fund buying experience from an investor’s perspective needs to be very different from the purchase of airline tickets. The efficiency of the digital medium is incomparably better to the physical form and it is only a matter of time before all investor transactions move there.