The year started off with a rumour that long-term capital gains will be introduced, and market participants were nervous. Finally, it arrived and it gave an excuse for the market to correct.
The market is a slave of earnings (sales and profit) but it runs faster than the earnings if inflows are higher. In this euphoria, investors forget the fundamentals and think that the market will move only in one direction: upwards. They then take higher exposure to mid- and small-caps to earn better returns.
Just look at the Index return now from the peak of 2018: large cap -2.9, mid-cap -18.4 and small-cap -32.7. This clearly shows that if you do not have a proper balanced portfolio, the impact during corrections will be severe (table shows the performance).
Fund managers fared differently, with wide performance levels. Yet, in some cycles, small- and mid-caps outperform large caps by a wide margin. It is good for investors to spread their investments across all three areas to improve returns.
|DSP Top 100||-11.2|
|Tata Large Cap||-10|
|Franklin India blue chip||-9.7|
|Axis Blue chip||-1.9|
|Sundaram Select Focus||-5.6|
|Reliance Large Cap||-5.7|
Index BSE Midcap Jan 18-2018
|SBI Magnum Midcap||-23.2|
|Invesco India Midcap||-10.6|
|BSE Small Cap from Jan15,2018||-32.7|
|HDFC Small Cap||-12.3|
|Axis Small cap||-14|
How did you perform?
How does this compare with the performance at MyAssetsConsolidation.com?
For the same period, in the portfolios we built for you all, on an average, the exposure to midcaps was 11.4%, small caps 2% and multi-caps 40%. The remaining half included large cap and balanced funds. In 2019, we will be increasing the exposure to mid- and small caps for you.
We were very cautious for more than 15 months and we told you so in emails in Oct 2017 and December 2017(attaching the blog link for reference). In our overall portfolio, the exposure to small- and mid-caps was small, and so the negative impact was reduced to greater extent. Even for clients who came on board only in 2018, we recommended only STP for 2-5 months due to concern on fundamentals of the market.
While even our investors’ portfolios corrected, our strategy helped reduce the loss in them. This clearly shows that asset allocation will give you a better investment experience even if you underperform during the bull phase of the market.
Strategy for 2019
We believe that the worst for the market is behind us, although the market may witness volatility till some lead in the 2019 General Election. With crude and the rupee stabilising, any improvement hereafter will favour the Bulls. If any single party gets at least a simple majority, the market may deliver 16% plus returns (the logic is that since 1980, the market delivered 16-28% in every election year). Corporate results are looking up, and this will also lend support to the market.
So, if you have surplus, do invest in liquid funds and move gradually into equity funds as per your asset allocation.
We are happy to tell you that in the past nearly eight years, our client base has increased substantially, thanks in part to the excellent referrals from you all. During this market correction, I see a lot of faith that you have had in the market and the advice we gave you. Redemption in this volatile period from our investors was less than Rs 10 lakh!
This gives confidence to us and I join my colleagues in saying THANK GOD FOR STITCHING TOGETHER SUCH MARVELLOUS CLIENTS INTO OUR GROUP.
On this happy occasion of the Festival of Lights, let us all share our surplus with the needy.
Link of previous year market views.