Q. The equity markets have rallied a lot in recent weeks. What are the factors driving this rally especially with high economic costs due to the present crisis?

Answer : In March this year, Indian markets alongwith global markets saw a sharp correction due to fears of Covid-19 becoming a global Pandemic impacting the economy significantly. However, the correction though sharp was short-lived and the markets have rebounded back over next 6 months. Global Central Banks sprung into action quickly adding significant liquidity to the system as well as bringing down the already low interest rates further. Seems the central banks may continue with excess liquidity for considerable time till the economic recovery is strong. Governments on their part too have announced fiscal stimulus measures to improve demand conditions. the markets seem to have discounted the fact that interest rates are likely to be lower and some amount of the liquidity has found its way into financial assets like fixed income and equities. While lower cost of capital led rerating has played out, the economic recovery led profit growth needs to support the markets further from here on.

As of now, Indian markets correlation with global markets is quite high in the short term in current year. Eventually fundamentals would matter and the market movement may be decided by how fast our economy reaches and crosses pre-covid levels of activity. As of now, expectations are towards normalisation by end of FY21. Any further delay may be negative. Government measures to stimulate demand or earlier than expected normalisation maybe positive.

India’s Long term demographic led consumption story may have been delayed by couple of years but it still has enough legs. The economy may still be amongst the highest growing ones within the larger economies. That could throw lot of stock picking opportunities for Long term investors with 3-5 year plus investment horizon.

Q. The past month saw a lot of public opinion against China and there is some focus around "Atmanirbhar Bharat". How do you see this impacting domestic business given the strong integration with China?

Answer : Events like the COVID-19 pandemic act as facilitators for some businesses and impediments for others. China has long been considered as the global supply chain hub. This change in scenario has forced countries across the globe to reduce their dependence on China and reassess their global supply chains. This is true for India as well. Such a shift in supply chain dynamics might cause some near term pain. However, over the long-run, it will create new opportunities for existing and new businesses to either enter new domains or consolidate their positions in existing domains which were previously threatened by Chinese suppliers. With the significant measure of Corporate tax cut by the Government last year, this provides a huge long term opportunity for India to Make in India for import substitution and exports as well.

Q. There is growing interest around gold in recent times amongst investors. How do you see this asset class in today's scenario and should retail investors make it a part of its portfolio?

Answer : Gold as an asset class has historically performed very well in times of economic and political uncertainty. To understand why investors gravitate towards gold in uncertain times it is important to know about the factors that make gold unique. Gold acts as a good portfolio diversifier as it has low to negative correlation with both debt and equity, having good historical performance with lower drawdowns. Also, gold is considered as good hedge against inflation, and lastly, in India, Gold holding are maintained to provide a feeling of financial security as it is considered a liquid asset which can be easily monetised in times of need. All these factors have led to Gold being an important asset class. However, since it is not a productive asset and fundamental valuation is not possible, opining on the same is difficult. Investors may have to take a call based on their unique circumstances and Risk-return profile.

Q. How is the mutual fund industry coping up with the business duties amidst the Covid-19 crisis? Can you throw some light on how the operations are being handled?

Answer : Our business has to a large part moved to digital means. Investors and Distributors have been able to seamlessly transact digitally. Most of the company and client meetings happen on-line. The MF industry has done well to hand hold their partners and investors and keep them constantly updated with the latest developments in the Markets.

Q. How should investors decide their asset allocation in such market volatility? What investment strategy should they follow?

Answer : An investor’s asset allocation strategy should take into consideration the investor’s goals, return requirements, risk profile, and investment time horizon. By taking these factors into consideration, investors can ensure that they create a well-diversified portfolio that is able to meet their return requirements while reflecting their comfort level with risk. In the current market volatility, investors should avoid panic and make investment decisions that adhere to their asset allocation strategy. Further, in case their investment portfolio has diverged from the asset allocation strategy, they can consider rebalancing their portfolio to ensure adherence. In volatile markets, it is even more imperative to adopt a long-term view and continue investing as per their asset allocation and investment strategy rather than being bogged down by the near term factors.

Q. Many new investors are not happy with low equity fund returns, especially on their SIPs. In such a scenario what would be your message to these investors?

Answer : Equity SIPs have historically performed well over the long-term. There are several factors that contribute to their long-term performance. Firstly, over the long-term, investing can benefit from the power of compounding such that their earnings get multiplied. Secondly, it brings about Financial discipline and savings culture in Investors which goes on to help in the Long term. Finally, equity as an asset class tends to be volatile in the near term primarily because in the short-term equity prices react to market noise and investor emotions. However, over the long-term, stocks tend to reflect their true fundamental value. Thus, SIP is a good tool in the hands of investors to accumulate wealth over longer term.

Disclaimer: The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The Trustee, Asset Management Company, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

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