Investors should have long-term horizon one has to appropriately adjust the time horizon returns
to realize acceptable returns from equities. Moreover, I believe that the most crucial economic changes that has triggered a growth phase in India is a change in interest rates. The lower rate of interest has led Corporates to go for "
capital expansion" and encourage consumers to go for" consumption expansion", but the honeymoon period for the interest rates seems to be coming to an end.
Due to the concern of an asset bubble, RBI has outlined the possibility of hardening interest rate environment. If this happens, the pace of capital formation and ongoing consumption boom might be rationalized. Therefore, the equity
investors would look forward to a greater risk premium, which would translate into a need for longer investment horizon. As we know, risk reduces with time in the market.I sincerely believe that to capture the upside of a going Indian economy, investors need to have a long-term horizon, more so at current valuations.The almost meteoric rise in index over the last few months is also a result of liquidity flow in the market. I believe that over a long period, it is expected to continue or even grow, as more household savings are allocated to equity asset class. One other interesting observation over the last few months is a negative flow from FIIs into the market getting counter balanced by the rise in mutual fund assets. This is very positive for the Indian markets. In short term, the liquidity flow may be volatile, hence, in an endeavor to participate in the upside of equity markets, investors also need to limit the downside risk of investment.
Moreover, investors need to focus on quality at this point of time and would recommend them to be selective in direct equity as well as in funds. We believe investors should realign their investments and move into funds, which can endeavor to preserve the capital on the downside
The author is
Sandesh Kirkire, CEO, Kotak Mahindra AMC.