Sundaram Mutual Funds, Anoop Bhaskar, on his investment strategy for the small investor and outlook on mid-cap stocks. Anoop manages the portfolios of Sundaram Select Midcap, Sundaram Tax Saver, equity portfolio of Sundaram Balanced Fund and Sundaram Monthly Income Plan. 

What strategy should a small investor follow pre and post Budget? 

Focusing on Budget as the cornerstone of one’s investing decision making has led to mixed results in the past – the number of times the markets have fallen after a budget is equal to the number of times it has risen over the last six or seven years. 

Instead, investing in equity today should be driven by the twin advantage of low interest rates – companies can now expand capacities by minimally diluting their equity and be resorting more towards debt funding.  The other positive to spur investment in equities would be the renewed focus on building infrastructure – roads, ports, airports, power plants, upgradation of power distribution.  This investment will have its multiplier impact on the economy and should sustain an investment led demand cycle for the next two/three years, provided political stability is sustained. 

Which sectors do you think will benefit from the Budget? 

More than the individual sector, the budget should further spending on infrastructure – additional contracts to build roads, power plants, upgradation of airports should be concretized in the forthcoming budget.  If the forthcoming budget is able to improve the overall climate for investment in the country, it would be a big positive for the economy as well as the stock market. 

Do you think the markets are overvalued current or there are possibilities of further upside? 

In the current interest rate regime, investment in equity as an asset class should generate higher returns as compared to debt.  Going forward, as long as interest rates remain sub 10% and liquidity remains positive, equity markets should continue to outperform debt.  Also to get a double-digit return one does not require a commensurate return from the Sensex, as most diversified funds have been able to generate returns higher than the Sensex. 

Which class of stocks mid-caps or large-caps do you think will outperform going forward? 

Over a cycle of three four years, returns from each segment of the market “even-out”.  As mid caps had suffered more sharply in the bear market of 2000-2003, their rebound has been sharper as compared to the large caps over the last eighteen months.  At today’s valuations, CNX Mid Cap 200 Index is roughly 22% of the Nifty, thus any equity investor should have a 20-25% weightage towards mid cap in their equity portfolio.  For less risk averse investors this proportion could be increased to 30-35%. 

How should a small investor approach investments in a Mutual Fund?

Every investor investing in a mutual fund should use it as a tool to enhance his/her wealth over the long term.  Periodic investment through the SIP route is perhaps the best route of investing in MFs, unfortunately investors do not seem to favour this route – which is why the returns generated through this contrarian approach are higher than the “lump-sum” approach adopted by most investors.  Lastly, an equity mutual fund is not a substitute for an equity share, thus investors should not be fixated by daily movement in NAV but should see it as an ongoing process for protecting and enhancing their wealth.