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Should equity mutual fund investors worry about Sensex fall, volatility?


The stock market is going through a rough phase. Rate hikes and inflation are monopolising the conversations. If you dig deeper, you will find that everyone is worried about an impending recession in developed countries. And what kind of impact all these will have on the Indian stock market is on everyone’s mind. The BSE Sensex fell 1,500 points on Tuesday. The market bellwether was hardly a few points higher on Wednesday. Most of the equity mutual fund categories offered negative returns in one day due to the fall in the market.

Market analysts believe that domestic stock markets and the rupee are facing problems due to the sharp rise in US inflation and hence the concerns over more aggressive rate hikes and stronger capital outflows. May consumer inflation hit a fresh 40-year high of 8.6% in the US, while India CPI inflation in May is expected to stay above 7%. After the numbers came out, the BSE Sensex tumbled over 1,500 points to hit an intraday low of 52,737 levels, while the NSE Nifty 50 broke below 15,800 levels.

Equity mutual funds have been offering negative returns in the short term because of the frequent falls in the market owing to several factors. Most of the equity categories are posting negative double-digit returns so far in this year. “Compared to the market base of 55-60k, 1,500-points fall is sharp but it is not very big. It was a sharp 2.2% fall. It was totally led by uncertainty and multiple news coming from various parts of the world. Market is trying to fathom the global inflation rise, expectations of rate hikes and the war. The volatility will continue for some time so investors should remain patient,” says Sorbh Gupta, fund manager, equity, Quantum Mutual Fund.

Equity mutual fund category 1-day returns (%) YTD returns (%)
Large cap funds -0.09 -10.14
Large & mid cap funds -0.16 -12.37
Mid cap funds -0.17 -12.45
Small cap funds -0.26 -14.34
Flexi Cap Funds -0.21 -12.25

Source: Value Research

However, mutual fund managers believe that the correction we have seen so far is only averaging the gains in the market. They believe that the falls can help investors buy at better valuations.

“The markets, when measured by the Nifty Index, are now approaching average valuations. The trend of contracting valuations multiple and improving earnings is likely to continue. This is the time to gradually increase equity allocations. Using volatility to our advantage will require one to stick to a disciplined approach to investing,” says Sahil Kapoor, Head- Products & Market Strategist, DSP Mutual Fund.

These mutual fund managers believe that investors should not focus on short term returns and volatility. They also believe that investors who are new and feel that they can’t stomach this kind of volatility should look at other, less risky asset classes. “Return expectations should always be based on your goals and your risk appetite and not on what markets have to offer in the short term. Indian markets are likely to do well over the long term and investors should remain focused on long term wealth creation,” says Sahil Kapoor.



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