George Heber Joseph, CEO-CIO, ITI Mutual Fund, says that investors wanting to invest in lumpsum should invest in Balanced Advantage funds while more conservative investors can use the Conservative Hybrid funds.

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In an interview to Zeebiz's Kshitij Anand, Joseph suggests that while valuations have come down from the recent peaks, they have not gone to very low levels that were seen in the black swan events. Edited excerpts:

Q) A war-like situation has emerged. It is new to many investors who entered D-Street back in 2020. Is it time to follow Warren Buffett's methodology – be greedy when others are fearful?

A) The ongoing Ukraine-Russia conflict and the resultant correction is providing a good opportunity to investors to increase their equity exposure.

The war and resultant oil price hike can have some near-term impact on India, but it does nothing to change the fundamental story about India and its improving growth trajectory.

Thus, it provides a good opportunity to accumulate positions in the equity market, treating volatility as a friend. However, investors need to adopt another of Mr. Buffet’s virtue ie Patience, as the starting valuations at current levels are not cheap.

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Q) What does history tell us about various Black swan events which have unfolded in history and what is the key takeaway for investors?

A) Significant negative events have led to large corrections in equity markets, which have been excellent entry points for long term investments. Eg. the Lehman crisis in 2008, the 9/11 event in September 2001, and more recently the Covid-19 pandemic in March 2020.

That is because entrepreneurs continue to find opportunities to develop good business despite very adverse macro situations. The governments also respond with reform measures.

Also, the crisis brings down the valuations to very attractive levels, laying the ground for making significant returns in equity markets.

However, the current Ukraine conflict was not a total surprise, and I would not like to yet equate it with a Black Swan event. Also, while valuations have come down from the recent peaks, they have not gone to very low levels that were seen in the black swan events.  

Q) Does it make sense for investors who plan to invest say Rs 10L now or should wait for a dip?

A) The economic impact of geopolitical events is more difficult to predict than the impact of pure economic crises such as the global financial crisis in 2008 or the taper tantrum in 2013.

Also, the Ukraine event is different from what we have seen in the last two decades such as US interventions in Syria, Libya, or Afghanistan.

It is coming at a time when overall market valuations are not very cheap. Hence, we would advise investors to invest gradually over the next three months.

Q) Many recent investor MF portfolios might have lost steam and wiped out most of the gains made in last 2 years. Things which portfolio investors should avoid doing amid the current turmoil?

A) Markets have seen a correction of 8-9% from the October 2021 peak, which is more like a correction in a bull market. Thus, it is unlikely that gains of the last two years have been lost.

The impact of the Ukraine conflict on India is more in terms of the spike in oil prices and it does not alter the longer-term fundamental story of improving economic growth in India.

Investors should therefore keep the faith and use the volatility as a friend to gradually increase equity allocation over the next three months.

They should focus on the medium-term prospects and not get drawn into the day-to-day volatility affect their sentiments.  

Q) Many new NFO was launched post Budget. In light of rising geopolitical concerns as well as rising interest rates – how should investors pick and choose funds? Which MF theme is suitable for long term investment?

A) Investors wanting to invest in lumpsum should invest in Balanced Advantage funds. More conservative investors can use the Conservative Hybrid funds, which has the potential to give better returns than traditional savings products and with much lower volatility than equity or aggressive hybrid funds.

Investment in equity funds should be done systematically over the next three to four months in the form of daily/weekly STPs or SIPs.

Q) When everything is available at a discount what should be stock selection criteria for long term investors?

A) As stated earlier, valuations and markets have seen some correction from the peak, but they are nowhere near the discount territory.  

We feel the domestic cyclical sectors such as banking, capital goods infrastructure, real estate are more attractive as India’s economic growth is on an improving trajectory.

Investors should focus on the earnings growth prospects over the next two years, the strength of the business model, cash flow generation, and balance sheet strength of the companies.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)