With the equity market in correction mode, investors are turning cautious. Throwing light on how one should manage one’s portfolio during such downtrends, two fund managers — Hrishikesh Parandekar, CEO, Karvy Private Wealth, and Yogesh Kalwani, head, Advisory, BNP Paribas Wealth Management — tell Vandana Vats that a long-term bet will yield results. Excerpts:

The stock markets have seen a sharp correction in the last few days. Is this the right time for retail investors to enter, or should they hold on to cash?
Hrishikesh Parandekar: The situation continues to be volatile, so it is best to be prudent. However, investors with longer-time horizons should never try to time the markets. It is very hard to catch the bottom or top of any market. If an investor is willing to take a one-year-plus view on his investment and has some appetite for short-term volatility, this is a good time to start buying.

Yogesh Kalwani: Equity market sentiment has turned negative across emerging markets due to the euro zone crisis. We may see another five per cent downside from the current levels. Having said that, we believe this correction will be a good opportunity to increase equity allocation and exposure, as the long-term India story remains intact. We expect the Sensex to trade above the 20,000 level within a year on back of good corporate earnings growth.

What should be the portfolio allocation strategy now (between equity, debt and other asset classes) for retail investors?
Hrishikesh Parandekar: Every investor has a unique set of circumstances — risk appetite, time horizon and financial goals. Hence, a generic portfolio allocation strategy will always be a bit misleading. For a retail investor looking to build long-term wealth, the biggest investment influencer is likely to be potentially high inflation. In such a scenario, keeping in mind the strong likely economic growth, equities and real estate tend to be the best-performing asset classes. We will recommend 50-60 per cent allocation to equities, 20-30 per cent to real estate (besides primary home), 10-20 per cent to debt and a marginal exposure to gold.

Additionally, some non-rupee exposure to other rapidly growing markets in Asia can also be considered.

Yogesh Kalwani: For conservative investors, we will recommend 65 per cent allocation to debt, 25 per cent to equity and 10 per cent to alternate assets. For aggressive investors, the equity allocation should be higher at 50 per cent, debt at 30 per cent and alternate assets at 20 per cent. Within alternate assets, investors can look at gold exchange-traded funds, structured products, commodities and real estate.

Should investors look at initial public offers (IPOs) or new fund offers (NFOs) at this time?
Hrishikesh Parandekar: IPO or NFO purchases have not performed particularly well in the recent past. They should always be weighed against similar equity/fund offers in the secondary market. A similar set of criteria needs to be applied to both forms of investment.

If the investor is convinced about an IPO and its long-term potential, or finds a differentiated investment strategy being offered through an NFO, then he should consider investment. Else, he is better off buying more established stocks/funds in the secondary market.

Yogesh Kalwani: We will recommend investors to consider the existing funds with a good track record rather than going for a new fund offer. The markets have already seen a sharp correction and existing funds can capture any market bounce back over the next few months. We suggest investments in the already-listed stocks across auto, capital goods, banks, industrials and pharmaceuticals, which will be available at attractive valuations after this market correction.

Within equity, which are the sectors one should look at? Should retail investors look at exposure to mid-caps and small-caps now?
Hrishikesh Parandekar: For a retail investor, it is always prudent to diversify one’s equity portfolio and not take concentrated bets. Hence, in addition to blue chip large-caps, it will be good to add mid-cap and small-cap exposure to the portfolio at these relatively beaten-down levels.

As for sectors, we like the growth-driven infrastructure and consumption-led stories. So, will recommend capital goods, infrastructure and financials.

Yogesh Kalwani: We like stocks of two-wheeler auto companies, given the high sales volume growth. We also like commercial vehicle stocks due to their high correlation with recovery in industrial production. We are bullish on capital goods and construction sector since they have seen witnessing strong order flows and have underperformed the markets over the last few months. We also like mid-cap stocks, as they are trading at a discount of 30 per cent to large cap on PE terms. We recommend up to 25 per cent allocation to this market segment.

What is your investment outlook for the next six months?
Hrishikesh Parandekar: Given the current volatility in the equity market, it is hard to say when we will bottom out. From an equity standpoint, with a six-month view, it is likely to be a traders’ market. However, we still anticipate equity indices to be at meaningfully higher levels by then.

Yogesh Kalwani: We expect markets to trade between 15,000 and 18,000 in the next six months. The next set of quarterly results and monsoon are the two key factors that markets will keep an eye on.
 

Global equity and commodity markets are on a crash course due to fears of the euro zone crisis intensifying and tension between the two Koreas. One of the largest foreign institutional investors, JPMorgan, however, says there is a silver lining in the dark cloud. Adrian Mowat, managing director and chief Asian and emerging market equity strategist, tells Palak Shah they will start buying Indian equities soon. Excerpts:

How long will problems in Europe last and what will be their impact on India? Which regions and sectors will see further impact of the slowdown in Europe?
Watch economic data, not the markets. European manufactures are benefiting from strong global growth and an increasingly competitive currency. Note that German, Italian, French and Spanish PMIs (manufacturing activity surveys) remain strong. The smart money should look to buy companies with large European exposure that have been oversold.

In recent days, foreign institutional investors (FIIs) have been the biggest sellers in India. What is scaring them away? At what levels do you see the benchmark equity index in the near term?
Always place FII activity into the global context for risk appetite. Three key global concerns for markets are deteriorating in sync; euro sovereign debt stress, financial regulation and China overheating fears. Add to these the heightened tension in the Korean peninsula. Faced with these concerns, a rational individual will reduce risk. Equity holdings, including that of Indian equities, are thus being reduced. We believe that MSCI Emerging Markets index should be bought below 840, it is at 860 today. India is moving with global markets and so we will be a buyer of India when it hits 840.

Will the US dollar and gold rise further from the current levels?
It is euro and commodity currencies (e.g. the Australian dollar) that are weak. Note that the dollar-yen exchange rate is stable. Euro weakness is the trend for now.

To what extent will the recent trillion-dollar package to the euro zone help?
The euro-zone package is designed to prevent contagion. In helping to keep the financial system working, it avoids damaging the economic recovery.