MFs crash but still promise long term gain

he bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market.

CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas.

As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario.

The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive.

He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut cost.
The performance of India centric companies is likely to improve as economy continue to grow at around 8.5%. Investment in equity of these companies will remain robust.

A senior mutual fund official said there is no redemption pressure on mutual funds. Investors are still investing in MFs. According to one source, Reliance MF has raised over Rs 5,000 crore in the primary market. Other funds like HDFC Infrastructure has mobilized around Rs 2000 crore. AIG Fund has raised another Rs 450 crore. These funds are likely to start investing in the current week. Besides, funds are mobilizing substantial fund through systematic investment plan (SIP).

FIIs have also started coming back in the market. In February so far, there net investment has increased by Rs 330 crore as against a net sale of Rs 3,200 crore in January.