Quitting market at the worst time is a big mistake: Dhirendra Kumar
- Investors investing in midcap funds today won't be as wrong as in 2017.
- Only investors with short-term expectation would be disappointed.
- There are not more than 4-5 midcap funds that can deliver.
If you look at the past three months, one month or for that matter even a one year performance of any small and midcap fund, you start wondering whether you should be investing at all in any of these schemes or not. But do you think right now is the time to buy this fear? When everything is at rock bottom, in the next five years, you are sure to make better returns, maybe even bigger than largecaps?
Oh! You have been too kind. In fact, all the investors who got excited about investing in mutual funds or initiate their SIPs when the whole Mutual Fund Sahi Hai Campaign took off, through 2017, are all very disappointed. The number of mails that we get at Value Research online tells how apprehensive the new investors are. It has been very disappointing. But at the same time, it is not something which is unusual. Equity turns out to be disappointing many a time and for a prolonged period of time and if you are investing, if you are in your accumulation phase, if you have chosen the right vehicle, if you are in the right kind of fund, do carry on. You do not have a choice.
The only problem is investors came with a short-term expectation and so they are disappointed. They will remain disappointed. They will not be able to meet their goal. But if you are investing for three years, five years, ten years, I do not think you have anything to worry about.
For two years, every fund manager we have spoken to said that the market is not cheap and looks like we are getting to a phase where market if not cheap, will be reasonably valued. Stopping your investment and getting out of the market at the worst time is one of the biggest mistake a investor can make and should not do that.
Is this the right time to get into midcap SIP, given the fact that two years ago we saw a very different scenario and midcaps trading at a premium are actually trading at a 30% discount? While there is a sense of nervousness around that basket of the market, it could also be an opportunity. What is your view, is this the right time to get into that pocket of the market?
Whenever we think of the tough times, the big guys actually rule the market but the way the midcap universe is getting defined and in fact got articulated by the regulator that companies which are not among the top 100 companies are midcap and the next 100 (101 to 200) on the market cap in the descending order are midcaps.
There could be a large number of companies which will be market leaders in their small sub segment or sub sectors. Many midcaps funds own which companies are not necessarily tiny companies. They are not unproven companies. Finding an opportunity there, spotting a company and backing their own conviction could prove to be more rewarding.
It also does not come with risk, given that we have seen those corrections. The kind of corrections in some of those midcaps can actually turn out to be very robust businesses and potentially become largecaps. There are five-six companies which comes to my mind which are great examples of that. One can take lesson from Bajaj Finserv in 10-years time frame, Aurobindo Pharma or five-seven other examples which have actually turned from smallcap to midcap and for the midcap funds which own a few of them, 90% of their blockbuster returns were derived from that. It is going to be the story even from here on.
The investors investing in midcap funds today are unlikely to be wrong as much as they were likely to be wrong in 2017 when it seemed all stocks have PEs of 70, 80, and everybody thought magic is about to happen.
At a time when we have at least five to six dozen funds which promise you a take on the Indian midcap economy, how does one filter the names to two-three and maximum five?
You have reasonable choice here but if you filter the funds on the basis of the fact that they should have been through two market cycles that is at least a eight-nine years. Somebody who has a well articulated principle which looks convincing and third, you know they have done well not by taking an extreme step. There are funds which look very impressive simply because they were in cash at an opportune time or they raised the money at a point which is favourable. Based on this, if you apply in some of these filters and a fund manager who have been around who have the person who is managing the fund have been around for that long, if I have to you know apply these filters I will be left with no more than four or five.