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Economic Times
19-05-2025
- Business
- Economic Times
Small and midcaps rebound not driven by fundamentals, but surplus cash: S Naren
Returns have been fantastic in the last two decades, but it is the risk that we have to focus on because people have not seen the risks, whereas if you take many of the other emerging markets, people have seen the risks much more than the returns actually. "They want to come costly, but we tell them come cheap, at least you can raise money comfortably. So, if they want to raise money at reasonable valuation, there is a lot of money available in India at this point of time," says S Naren, ED & CIO, ICICI Prudential AMC. When we spoke to you last time it was selloff in mid and smallcap stocks, everything in the smid space as we call them was shaking. Now, when we are speaking to you cement gains in largecap stocks have got cemented and for a market which was lacking triggers, there were concerns around tariff and geopolitics, looks like right now there is no worry in the world. So, from fear to hesitation, now somewhere between excitement and greed. S Naren: Yes, absolutely. When we are investing public money, to find pockets of value has become very-very difficult at this point of time. At least earlier you had, banks were very attractively valued. Many of the largecaps look very-very cheap relative to midcaps. Now, today across the board it is very tough to find which are the big pockets of value. I mean, as I was telling people Indian market is one of the best macro markets in the world, but due to that it is so difficult to find pockets of cheap value for equity market investor like icici Prudential Mutual Fund, that is the challenge actually. Because if something is cheap, every investor buys that part of the market and takes it to fair value and that is the challenge that we are facing when we are investing at this point of time. I do not think there is any other market in the world where fiscal is under control, current account deficit is under control, inflation is under control, growth is good, so banking system is in good shape today. Today, what is the big change between the time we spoke last and now is that liquidity has been improved in the economy, thanks to the fantastic effort of the Reserve Bank of India, that today there is phenomenal amount of liquidity in the economy and therefore, we have a situation, we have a very-very comfortable macros. It is tough to find value. How does one go about investing in this kind of a market where nothing is cheap, half of the market is either overpriced and other half is actually reasonably priced. How does one go about investing in this market because on a monthly basis you are getting inflows and now FIIs have also started buying, so there are no sellers in the market, only buyers? S Naren: It is tough actually. So, what we tell people is do asset allocation, which means do not put all your money in equity alone, invest in hybrid. Then, we tell people invest in the more safer parts of equity and in a way, we tell all the companies which are floating IPOs in the market come at reasonable prices, is the best time to come. They want to come costly, but we tell them come cheap, at least you can raise money comfortably. So, if they want to raise money at reasonable valuation, there is a lot of money available in India at this point of time. So, this is what we tell people and so we have a very comfortable environment, but you have to use it to raise money at reasonable valuations. Then, a lot of money can be raised by everybody. It can be raised by corporates. It can be raised by government in disinvestment. But finally, at the end of the day the valuations have to be reasonable. It cannot be absurd. And then, the challenge will come. Last time again when we spoke to you, you said cat among the pigeon. You really got everyone thinking, wondering and some of us got scared when you said that cancel your sips in small and midcap stocks. There is bubble and trouble there. But surprisingly along with large and midcap stocks, small and midcap stocks have also managed to bounce back. What explains this excitement in that end of the market. I can understand why largecap stocks are coming back. They were cheap. They were underowned. They were underperforming. But smallcap stocks also have seen nothing short of a V-shaped rally from the recent lows. S Naren: Now, there is lot of money in the market. There is no shortage of money in the market at all. The amount of money that mutual funds are getting across the entire spectrum is very-very large. So, finally, that money has to get invested. If you look at the amount of cash that the mutual fund industry has in April end, it has gone up by more than 20,000 crores from where it was in March end because in April they did not invest enough. So, the cash has gone up. So, we have a situation where there is huge amount of money. So, I do not think market movement in the near term is about valuations or something. It is about liquidity and there is huge liquidity at this point of the market. As I mentioned, the Reserve Bank has also done its bit all the way in the last three to six months to improve liquidity in the economy. And what we want is that that liquidity that the Reserve Bank has pumped has to go into the real economy, not only into asset prices. If all the money that is being pumped by the Reserve Bank goes only into asset prices, it is not good for the economy because even today, if you look at sectors like FMCG, they are hardly growing. It is only asset prices which are booming substantially. You have to see FMCG sector doing well. You have to see two-wheeler sector doing much better. You have to see the entry-level car markets doing much better. So, we would love to see many parts of the economy do much better than asset prices just going up because of extremely good liquidity improvement thanks to the Reserve Bank of India. A new NFO presentation. I have stumbled a page, Seth Klarman, we all know him and I am going to quote him. It is part of a new NFO presentation which we will talk about. Most investors are primarily oriented towards return, how much they can make and pay little attention to risk and how much they can lose. And since you have championed the whole idea of risk in this market, where is risk in this market? And for someone who has invested outside the comfort of largecap stocks, what kind of risk are they exposing themselves to? S Naren: Yes, the risk in this market continues to be in the derivative segment, particularly the weekly option segment. I would say that is one of the markets. If you see even today, I think on the weekly settlements, the market turns out to be very volatile and that is one area where I would always tell retail investors do less. And second is I would say when they are investing in IPOs of loss-making companies, I think they have to be much-much more careful, so I would say that is a second area. And now I do not hear so much of conversations on SME IPO, that was a third area of risk, but I am not hearing so much in the recent past. I do not know what has happened because we do not participate in that segment, but I would say that is an area which seems to have become smaller. Has that boom come down? I do not know, but maybe it has come down, so I would say that was a third area. And as such we are worried that too much of money comes into equity from people who think that equity does not deliver negative returns and again the quick rebound has given again the feeling that equity does not give negative returns, that is something which worries us, particularly people who have seen longer periods of time and there are too many investors in the market who have been there after 2013 who have not seen this and that is something which worries us all the time. And because finally, mutual funds are custodians of public money and therefore when we try to tell people that there are risks, it is actually because as custodians of public money we have to consciously talk about the risks rather than talk about the returns. Returns have been fantastic in the last two decades, but it is the risk that we have to focus on because people have not seen the risks, whereas if you take many of the other emerging markets, people have seen the risks much more than the returns actually.
Time of India
19-05-2025
- Business
- Time of India
Small and midcaps rebound not driven by fundamentals, but surplus cash: S Naren
Returns have been fantastic in the last two decades, but it is the risk that we have to focus on because people have not seen the risks, whereas if you take many of the other emerging markets, people have seen the risks much more than the returns actually. You have to see FMCG sector doing well. You have to see two-wheeler sector doing much better. You have to see the entry-level car markets doing much better. So, we would love to see many parts of the economy do much better than asset prices just going up because of extremely good liquidity improvement thanks to the Reserve Bank of India. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads "They want to come costly, but we tell them come cheap, at least you can raise money comfortably. So, if they want to raise money at reasonable valuation, there is a lot of money available in India at this point of time," says S Naren , ED & CIO, ICICI Prudential absolutely. When we are investing public money, to find pockets of value has become very-very difficult at this point of time. At least earlier you had, banks were very attractively valued. Many of the largecaps look very-very cheap relative to midcaps Now, today across the board it is very tough to find which are the big pockets of value. I mean, as I was telling people Indian market is one of the best macro markets in the world, but due to that it is so difficult to find pockets of cheap value for equity market investor like icici Prudential Mutual Fund, that is the challenge if something is cheap, every investor buys that part of the market and takes it to fair value and that is the challenge that we are facing when we are investing at this point of time. I do not think there is any other market in the world where fiscal is under control, current account deficit is under control, inflation is under control, growth is good, so banking system is in good shape what is the big change between the time we spoke last and now is that liquidity has been improved in the economy, thanks to the fantastic effort of the Reserve Bank of India , that today there is phenomenal amount of liquidity in the economy and therefore, we have a situation, we have a very-very comfortable macros. It is tough to find is tough actually. So, what we tell people is do asset allocation, which means do not put all your money in equity alone, invest in hybrid. Then, we tell people invest in the more safer parts of equity and in a way, we tell all the companies which are floating IPOs in the market come at reasonable prices, is the best time to want to come costly, but we tell them come cheap, at least you can raise money comfortably. So, if they want to raise money at reasonable valuation, there is a lot of money available in India at this point of this is what we tell people and so we have a very comfortable environment, but you have to use it to raise money at reasonable valuations. Then, a lot of money can be raised by everybody. It can be raised by corporates. It can be raised by government in disinvestment. But finally, at the end of the day the valuations have to be reasonable. It cannot be absurd. And then, the challenge will there is lot of money in the market. There is no shortage of money in the market at all. The amount of money that mutual funds are getting across the entire spectrum is very-very finally, that money has to get invested. If you look at the amount of cash that the mutual fund industry has in April end, it has gone up by more than 20,000 crores from where it was in March end because in April they did not invest enough. So, the cash has gone we have a situation where there is huge amount of money. So, I do not think market movement in the near term is about valuations or something. It is about liquidity and there is huge liquidity at this point of the market. As I mentioned, the Reserve Bank has also done its bit all the way in the last three to six months to improve liquidity in the what we want is that that liquidity that the Reserve Bank has pumped has to go into the real economy, not only into asset prices. If all the money that is being pumped by the Reserve Bank goes only into asset prices, it is not good for the economy because even today, if you look at sectors like FMCG, they are hardly growing. It is only asset prices which are booming have to see FMCG sector doing well. You have to see two-wheeler sector doing much better. You have to see the entry-level car markets doing much better. So, we would love to see many parts of the economy do much better than asset prices just going up because of extremely good liquidity improvement thanks to the Reserve Bank of the risk in this market continues to be in the derivative segment, particularly the weekly option segment. I would say that is one of the you see even today, I think on the weekly settlements, the market turns out to be very volatile and that is one area where I would always tell retail investors do second is I would say when they are investing in IPOs of loss-making companies, I think they have to be much-much more careful, so I would say that is a second area. And now I do not hear so much of conversations on SME IPO , that was a third area of risk, but I am not hearing so much in the recent past. I do not know what has happened because we do not participate in that segment, but I would say that is an area which seems to have become smaller. Has that boom come down?I do not know, but maybe it has come down, so I would say that was a third area. And as such we are worried that too much of money comes into equity from people who think that equity does not deliver negative returns and again the quick rebound has given again the feeling that equity does not give negative returns, that is something which worries us, particularly people who have seen longer periods of time and there are too many investors in the market who have been there after 2013 who have not seen this and that is something which worries us all the because finally, mutual funds are custodians of public money and therefore when we try to tell people that there are risks, it is actually because as custodians of public money we have to consciously talk about the risks rather than talk about the returns. Returns have been fantastic in the last two decades, but it is the risk that we have to focus on because people have not seen the risks, whereas if you take many of the other emerging markets, people have seen the risks much more than the returns actually.
Time of India
17-05-2025
- Business
- Time of India
Gold is even worse! What value investor S Naren has to say on most popular asset class
Gold has emerged as the most talked-about asset class in recent times, attracting immense investor interest globally. However, S Naren, Chief Investment Officer at ICICI Prudential AMC , has sounded a cautionary note on the yellow metal, stating that despite its current popularity, gold is not a lucrative investment option at this point. In a recent interaction with ETNow, Naren pointed out that the surge in questions about gold during investor meetings reflects the heightened focus on the asset, but he maintained that its value proposition is questionable, especially given its current price levels. 'Gold is even worse,' he asserted, emphasizing that the metal is no longer as attractive as it was two years ago. Despite its widespread popularity, he indicated that the precious metal is not an attractive investment option currently, particularly when compared to its more favorable outlook two years ago. 'Two years back, for example, gold and silver were very-very interesting, so we actually thought it was very-very interesting, now even that does not look at this point of time,' he said. Discussing gold's meteoric rise, Naren remarked, 'The asset class which is most in vogue right now is gold. If you go for any meeting, the number of questions we get on gold is unbelievable at this point of time.' Live Events On the debt market front, Naren observed that in India, the 10-year government securities are currently at some of the lowest interest rates seen in recent years, contrasting sharply with the Western markets where 10-year yields are at multi-year highs. 'Across the world, you are at the highest yields in 10-year, except in China and India,' he noted, pointing to the relative lack of value in Indian debt instruments. Also read: Gold Price Prediction: Yellow metal gets cheaper by Rs 3,750/10 gm this week. More fall ahead? What should investors do? The veteran investor suggested a diversified investment approach, advising that it is not the time to focus on a single asset class but rather to allocate capital across multiple assets while maintaining a conservative stance. 'It is a time where you allocate money across asset classes and not choose one asset class and at the same time today focus within every asset class on the safer parts of the asset class because of the way the markets are at this point of time,' he recommended. Despite the challenges in asset allocation , Naren remains optimistic about India's macroeconomic stability, highlighting that the country continues to be one of the best structural stories globally, having managed its macro fundamentals effectively over the past decade. ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Business Recorder
09-05-2025
- Business
- Business Recorder
Flows to Indian equity mutual funds drop to one-year low in April
Inflows into India's equity mutual funds fell for the fourth consecutive month in April, reaching their lowest in a year amid market volatility triggered by U.S. tariff concerns, data showed on Friday. Net inflows fell 3.24% month-on-month in April to about 242.69 billion rupees ($2.83 billion), data from the Association of Mutual Funds in India (AMFI) showed. However, expectations of India's economic resilience to tariffs, along with hopes of a trade deal and favourable valuations helped limit the decline, while buying extended into the 50th straight month. Inflows into largecap funds rose 7.75% to 26.71 billion rupees in April, while midcap and smallcap inflows fell 3% and 2.2% to 33.14 billion rupees and 40 billion rupees, respectively, the AMFI data showed. The benchmark Nifty 50 index rose 3.5% in April. The small-cap and mid-cap indexes gained 2.2% and 4.8%, respectively. Indian benchmarks may open higher on easing trade woes, foreign inflows 'Largecaps are relatively more appealing now than they were in September 2024, when the benchmarks hit a record high,' said S Naren, executive director and chief investment officer at ICICI Prudential AMC. The Nifty 50's 12-month forward price-to-earnings ratio has fallen to about 21x at the end of April, from 24.4x at the end of September. Contributions via systematic investment plans (SIPs) rose 2.7% to a record high of 266.32 billion rupees, with the number of contributing SIP accounts rising to 83.8 million from 81.1 million in March. While global trade uncertainties remain a headwind, India's investment cycle is likely to be on a medium-term uptrend supported by the likelihood of trade deal with the U.S., recovery in earnings and economic growth, two analysts said. 'The sustained equity inflows for 50 months indicate steady interest from mutual fund investors, but flows in the near-term could be very volatile given the India-Pakistan tensions,' AMFI CEO Venkat Chalasani said. Given the likelihood of continued domestic rate easing in 2025, return of foreign inflows, expectations of earnings and growth recovery could accelerate inflows into mutual funds once the volatility in funds subsides, Chalasani said.
Mint
06-05-2025
- Business
- Mint
Should you diversify your portfolio by adding mutual funds focused on quality strategy?
Several mutual funds have filed with the Securities and Exchange Board of India for quality strategy funds. Quality strategy involves investing in companies that have strong fundamentals and robust balance sheets. It prioritises stocks with high profitability, high return on equity and low levels of debt. Should those looking at diversifying their portfolios with a different investment style consider the quality theme now? With the markets going through a phase of uncertainty, past performance suggests that the quality theme tends to do well during such times. In 2013, when the US Federal Reserve started to unwind the huge liquid ity surplus it had maintained to stimulate the economy, the benchmark Nifty 50 Index gained 6%, while the Nifty 200 Quality 30 Index advanced 17%. It outperformed other strategies — with the Nifty 200 Value 30 Index losing 15%, the Nifty 200 Alpha 30 Index adding 14% and the Nifty 200 Momentum 30 Index rising 10%. Value strategy focuses on stocks trading at cheaper valuations than their earnings and intrinsic value. The alpha strategy calls for investing in stocks that have widely outperformed market benchmarks in recent periods, and the momentum strategy looks for stocks with recent price up-moves. In 2018, when the markets faced pressure from the impact of the IL&FS crisis, the Nifty 50 Index was up 4%, while most other strategies yielded negative returns. However, the Nifty 200 Quality 30 Index delivered 7% returns. "In today's environment of economic uncertainty and moderating growth, businesses with sound financials and sustainable profitability stand out," said S Naren, executive director and chief investment officer of ICICI Mutual Fund, which recently launched the ICICI Prudential Quality Fund. 'A quality strategy-oriented fund aims to tap into this potential by selecting high quality companies available at reasonable valuations, thereby aiming to build a resilient portfolio designed to perform across market cycles. With attractive valuations in the quality segment, we believe this is an opportune time for investors to adopt a quality-focused strategy." While most funds in this segment are passively managed – tracking the performance of the quality index – ICICI MF's quality fund is an actively managed fund. Experts expect quality as a theme to do well going ahead, as it has underperformed other strategies from FY21 to FY24. "The volatility induced in the market over the last few months (GDP slowdown, tariffonomics, Indo-Pak situation) has poked the bubble of a pure liquidity and deep value driven rally in stocks and sectors," said Sunil Subramaniam, a market expert and former mutual fund CEO. 'So now companies with sound financials, deep moats and entry barriers, high corporate governance and relative stability and predictability of earnings are the ones which will withstand the test of facing up to the uncertain local and global environment over the next few months. In effect, it's the time for 'quality' to dominate allocations by both foreign institutional investors and domestic institutional investors." Strategy-based investing can be considered more of a tactical allocation than part of one's long-term core portfolio. Investors can complement the quality strategy with other strategies. 'By itself, quality may not always work but combining it with momentum can give a better investor experience," pointed out Kavitha Menon, founder of Probitus Wealth. Quality can also be combined with value because when value does well, quality underperforms and vice-versa. However, investors who are at the beginning of their investment journey should stick to regular diversified equity funds to build up their core investment portfolio before looking at tactical investment calls.
