In volatile market, it is best to invest with caution

With the stock market having witnessed a massive bull run in the past 18 months and valuations being high, investors should now adopt caution and invest mainly in blue-chip companies to counter any likely volatility, says Sanjiv Bajaj, joint chairman and managing director of Bajaj Capital. Speaking to News9 as part of the Market Mavericks series, Bajaj advises investors to have definite financial goals and maintain asset allocation accordingly. Edited excerpts from the interview:

1. The stock markets have been highly volatile in recent days after the impressive run over many months. How should investors position themselves in the present market?

A. I think the volatility is going to continue. It is a time when you have to be very careful. This is the time for value and for high-quality stocks. You need to be in blue-chip stocks or value funds where there is some amount of value. There may be some stocks that are overvalued and may see some correction with the liquidity flowing out. This time is not like the past 18 months when any mutual fund you picked up would have done well. Now, you have to be careful with your portfolio selection and allocations of your money.

2. What impact do you think the current Covid-19 wave is likely to have on the investment landscape?

A. The Covid-19 situation has already been factored in. I think people are confused about Omicron. They don’t know how it’s going to pan out. Yes, there is a scare out there. However, if it turns out to be a mild version of coronavirus, the markets may move ahead. But if it is aggressive, markets may be impacted. Whenever there are lockdowns, there are losses. But overall, we are in a very strong place. So, if we are going to be in the market for the long run, which for me is three-10 years, then you don’t need to bother about these things. You just need to get started and stop waiting on the sidelines.

3. You said investors need to be cautious at this point. What role debt would play now and how important is asset allocation?

A. What we need to be careful about are the small, weak stocks that have gone up. These companies don’t deserve to be at the valuation they are in. The market will always give premium to the best of the best, but when the weak companies also start getting a premium, one needs to be careful. In this situation, you should move to a more conservative portfolio with blue-chip stocks and value stocks.

4. What role does gold have at present and how much exposure should one take?

A. In the long run, gold will give you 4-5%. You can make some allocation for gold, maybe a maximum of five per cent. There may be times when gold will give you a 20-30% return, but in the long run, it is going to average down to five per cent.

5. How are you seeing the financialisation of savings? Are you sensing more people taking to investing in financial instruments and what is your advice for new investors?

A. The number of new people who are coming into the capital market is phenomenal. Most of us enter at a late stage of a rally when markets have run up a lot and if markets start correcting, we panic and lose money. We think this is not the right thing to do. If you are in the market, please stay for 10-15 years. Don’t try to trade directly unless you have knowledge of the markets and don’t trade on tips. As I said earlier, buy high-quality companies like Reliance, HUL, ITC, the best of the best. It is a simple game.

These companies will grow at 10-20% every year and your money will grow along with that. Secondly, retail investors should choose to go through mutual funds, PMS or AIFs. Let the fund manager do the job.

The fund manager’s future and your returns are linked. These are some of the smartest people and will put in their 200% to become a star fund manager. Investing is not a Do-It-Yourself (DIY) game. You need an advisor who will prevent you from making mistakes. Remain invested as there is a lot of money to be made in the long run. The article is for information only. Readers are advised to invest at their own discretion.

(The article is for information only. Readers are advised to invest at their own discretion).