Equity investments have become a great source of long-term gains over the last many years, says Devender Singhal, Fund Manager, Kotak Mahindra Asset Management Company.
In an interview withMintGenie, Singhal said that equity investments are always accompanied by higher risks and related volatility. A Special Opportunities Fund is no exception.
The market is currently at valuation multiples which may not be called attractive, more so, for mid caps and small caps where the valuation premiums are above long-term averages. We don’t see a case for multiple expansions over the next couple of years (especially for mid caps and small caps). In this scenario, Alpha generation would come along with unique opportunities where you may see a case for both earnings growth accelerating and the scope of valuation multiples expanding. This fund seeks to invest in these very special opportunities. So, yes, we do think that this is the right time for such a fund.
Special opportunities can come in any form. It can be by way of (a) policy changes in India and abroad, (b) mergers and acquisitions, (c) demergers, (d) management change, etc. There are further opportunities to look at operating leverage turning into financial leverage, industry consolidation, buyback, etc. So, the canvas is pretty wide to look across the market for such opportunities.
Equity investment is always accompanied by higher risk and related volatility. This fund is no different in that case. However, when you are focusing on bottom-up stock picking, you look at a disproportionate risk-reward scenario loaded in your favour.
Thematic funds generally have a much focused approach towards a particular sector or theme. These are hence used as a flavour to the overall equity exposure when an investor wants to play a specific theme more than any other. These funds, if used proactively, can add potential alpha to a client’s portfolio return.
Equity investments are a good tool for long-term capital appreciation. They have become a great source of long-term gains over the last many years. This also results in money being more productively used for a country’s growth and reap rewards over the long term.
In the market, it’s always important to have a view on both risk and return and then move ahead. Many times investors just focus on the return part and that is the time mistakes happen. Moreover, it’s always better to seek professional advice while investing in equity markets. Just remember, “There are no free lunches”.
A stable government with a growth orientation is something all investors ask for. So, yes, the coming back of the incumbent government is rekindling the hopes of investors of policy reforms continuation and acceleration in coming years. We are also seeing flows into the equity market increasing post the government formation. However, it would be wrong to say that investors are ignoring fixed-income instruments as we are seeing deposits increase as well. So, investors are looking at both asset classes, though the noise around equity investments is a bit more in the current scenario.
Investors who don’t need money for the next 20-25 years should have a sizable allocation towards equity. This will surely help her create a nest egg for her future needs. However, there is no one rule which fits everybody. It all depends on your cash flows and risk profile.
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