One of the major news headlines this month was around SIPs and how flows had finally started getting impacted adversely.
Yet again, retail investors started losing calm? Or is it a fear that markets have no link to reality and that sooner or later, Nifty will descend back to sub 10000 levels?
In our previous articles, we had mentioned how the USD would sooner or later face resistance especially if the central bankers loosened their purse-strings and how simultaneously, gold was positioned for technical breakouts. In the face of the upcoming US elections, and the recent hardening of the POTUS’s stance on China, it was a matter of time when emerging markets found a flood of money as it had nowhere else to go. With real returns in US debt negative and a possible long term breakdown on the cards in the USD, money has to gush in somewhere- and more alternatives will start emerging post Gold Silver rallies etc once Covid related news becomes slightly more positive.
The US July job figures also showed a disturbingly low number of returning workers in manufacturing. The 26k increase paled in comparison to the median forecast for 255k and June’s 357k increase. Losses were reported in the production of computers and electronic goods, fabricated metals, and machinery. This is contributing to fears on the economic engine possibily beginning to sputter even as the FAANG stocks hit highs leading to indices holding strong.
On the other hand, the four largest European countries reported June industrial production that was above expectations, and not by just a narrow margin. The median forecast was for France and Italy’s output to expand by 8.4% and 5%, and instead, production increased by 12.7% and 8.2%, respectively. Spain’s 14% increase easily bettered the median projection of a 10% increase. And with domestic financing activity in China at double of last year, with its own “Aatm Nirbhar” programme launched in May 2020, emerging markets are beginning to beckon. This in turn is causing further weakness in the USD.
India of course will have a slightly more uphill task in motivating flows as it was a weakish economy even prior to Covid and hence international investors’confidence is relatively lower when ranked against other emerging markets.
That money which is coming is obviously, in fits and bursts, finding its way into the Hrithiks (HDFC Twins, Reliance, Kotak, Infosys, TCS) – which constitute about 61% of the market cap currently – leading to again a very concentrated rally giving an illusory high on the Nifty. Add Britaania, Eicher etc and it seem to be a very narrow rally – not a broad market one. The rest of the market still is toiling to find its highs with strength only in recent days.
Another issue (opportunity?) is the complete underperformance of financials – currently we stand at a level of the relationship between Nifty / Bank Nifty as well as Nifty IT/ Bank Nifty which was last seen in 2013. And as markets are cyclical in nature, we believe this will start reversing sooner rather than later.
Incremental news is also positive – a recent report by the finance ministry stated that a few key indicators recovered since June, although the risks related to COVID-19 remained. Agriculture may uplift the economy in 2020-21, thanks to the “forecast of a normal monsoon at 102% of long period average”. This will of course find its way into demand for a whole range of goods and services./
So What do you do
These are uncertain times. Covid is an unknown animal still being understood. And the vaccine is still some time away but the fact is that we have started to get used to it – in our own ways. Policymakers are struggling across the world to figure out a measured response without destroying their own solvencies and companies are acting similarly. Its likely therefore that this crisis too shall pass, with collateral damage but with modern industrial activity returning back to normaly sooner or later.
When more than 80% of the largecaps still way away from their 52 week highs, and many still at 200 day moving averages, and the initial economic green shoots just about beginning to sprout, this is a very bad time to stop SIPs! If at all, one must look at increasing SIPs in areas that have not participated in this so called rally (On a year on year basis, the index is still negative).
Options to Choose From
The easiest option of course is to get into quality multicap funds – or if you are more aggressive, maybe select midcap funds. Unless of course there is this nagging fear of a correction. No matter how much we tell you that its irrelevant as far as an SIP is concerned especially if you have a 5 year plus horizon, you may still be reluctant. The top performing funds are available at https://www.supermf.com/Explore
You could of course also invest in Index Funds available at https://www.supermf.com/Explore or, investing into ETFs via Equity SIS available at www.plclients.com. You could also use the same option to select some quality stocks from our top picks.
You could of course look at the financials space and SIPs in mutual funds / select stocks. Or cylicals especially metals where risk remains high , year on year returns are still very negative despite recent rallies BUT a potentially stronger Europe and China offer upside potential.
There are other interesting options available as well. You could for example, select an Nifty Ëqual Weighted Mutual Fund for an SIP. There are some mutual funds available which invest in all the Nifty stocks in equal proportion – so Hrithik stocks will have a 14% weight in your SIP versus a 61% weight in the index which offers you the upsides of the broad market without the risk of deep corrections in Reliance TCS etc.
Alternatively, there are some excellent international funds/ international feeder funds available – and although they have some risk if the INR appreciates, its likely that they will provide adequate growth as well as diversification to portfolios especially if an SIP route is chosen. See these funds at https://www.supermf.com/Explore in the Equity FOF category. Some of these funds are focused on emerging markets while some offer you exposure to gold miners, agriculture, latin America and of course, select themes in US markets.
Setting up an SIP with SuperMF is very easy and in case you wish to see q quick video, do visit https://www.youtube.com/watch?v=e9_aJA_wcB4&t=53s. All you need to do is to login with your PLClients username and password and log in! And If you have forgotten it, just visit www.plclients.com , enter your Trading ID at PL and click “Forgot Password” to get it immediately via email and SMS.