Atul Bhole, senior vice president – investments at DSP Investment Managers, believes any upheaval in crypto markets would invite volatility in the markets. He spoke with Mint on the need for crypto regulations, China’s Evergrande crisis, and why he is still bullish on equities despite pricey valuations. Edited Excerpts:
For quite some time, there have been fears of steep correction in the markets. Can China’s Evergrande crisis be the trigger?
It would be impossible to predict which event would cause correction and timing of it as the market is continuing to climb a wall of worries. While the Evergrande crisis can cause some growth slowdown in China, it may not cause any systemic issues given the Chinese government’s ability and track record of acting swiftly.
Central banks’, particularly US Fed’s, commentary and actions going forward would be the most important events that would be keenly watched by market participants to err on the side of caution.
The prescribed asset allocation for DSP Flexi Cap Fund is 65-100% equity. But, at present, the fund is around 97% equity. Do market conditions warrant trimming the equity allocation?
Given the powerful macro-environment developing globally, wherein growth is finally making a comeback along with some degree of inflation, equities as an asset class are in a sweet spot.
Ample liquidity and lower interest rates continue to benefit equities as the normalization of easy monetary policies is likely to be very gradual. In India’s case too, all drivers of the economy viz. exports, infrastructure, real estate and finally consumption are ready to fire.
What will be the impact of the demand for passive style of investment on the mutual fund industry?
Passive investing has got its own merits in terms of following index neutrality and low fees. Its proportion in the overall assets under management (AUM) can definitely go up. But we see that the growth in overall AUM itself would be pretty strong, and active investments still forming a major part of it. As we are about to enter a broad-based growth phase again, active managers have the opportunity to generate alpha exploiting their stock selection ability.
If a new investor is coming to the market with ₹1 lakh in hand, what should be his or her strategy?
We would advise the investor to stick to his/her asset allocation and stay invested in each asset class as the allocation plan rather than tweaking according to market level. If the allocation pattern requires investment in equity, the investor can go for fulfilling it in one go or over the next three-six months through a systematic transfer plan (STP).
It is very important to bear in mind that post such a breakneck rally, a repeat cannot be expected in the near term and the investment needs to be a period of more than five-seven years to expect decent returns from these levels.
Do you see any impact on the mutual fund industry from cryptocurrencies getting regulated as an asset or commodity?
Given the kind of money attracted and scale achieved by cryptocurrencies over the past few years, any upheaval in this class would invite volatility in the markets. If the regulations cause a massive fall in crypto values and wealth destruction, all other assets can see some correction in the short term.
But stock prices have underlying businesses backing them unlike crypto and should see a bounceback soon with allocations getting shifted.
It would be better if governments and central banks started regulating cryptocurrencies sooner than later before the bubble gets larger.
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