By Nikhil Dedha
Mumbai (Maharashtra) [India], October 9 : Investors who have stayed invested in mutual fund systematic investment plans (SIPs) over the past five years may have earned returns no better than fixed deposits (FDs), and prolonged weakness in the stock market could further worsen their returns, Ambareesh Baliga, Independent Market Analyst, said.
In an exclusive conversation with ANI, Baliga said the continuing market correction has tested investors' patience, including those who have consistently invested more money whenever stock prices declined.
"Look at the latest SIP data. I mean those who have invested in the last five years in mutual fund SIPs, I don't think they have made more than the FD interest rates. And in case the markets remain like this for a while longer, you could see this even worsening," he said.
His remarks come amid continued pressure on Indian equities, with investors facing uncertainty over crude oil prices, inflation, the rupee's depreciation, interest rate hikes and disruptions to global supply chains.
Baliga also flagged weak monsoon conditions as an additional risk for the domestic economy.
He said investors who had earlier remained optimistic about the market and bought shares during every decline were now becoming increasingly cautious because prices continued to fall even after they increased their investments.
"People who are quite positive on the markets were averaging at every fall, and even those people are now tired of averaging because after every averaging you still see the stocks coming on further," Baliga said.
Despite the possibility of further downside, he believes current valuations are becoming attractive. However, investors are waiting for positive triggers before committing fresh money, particularly after repeated market declines.
"Valuations are compelling. But then generally to buy, most of the people wait for triggers," he said, adding that there appeared to be few positive developments on the horizon as much of the incoming news remained negative.
Baliga identified the situation in West Asia as a key concern because higher crude oil prices were feeding into inflation and contributing to pressure on interest rates. The rupee's depreciation and supply-chain disruptions were adding to the challenges facing the market.
He also highlighted the risks arising from weak monsoon conditions across several states, warning that the situation could add to inflationary pressures in the short term.
Baliga added that historical market trends suggested that recoveries often begin when investor sentiment becomes deeply negative, although the trigger for the next recovery remained uncertain.
He said a resolution to the West Asia situation could provide a trigger, but it was unclear whether that or another development would help markets recover.
On the information technology (IT) sector, Baliga said the US government's green card freeze on Indian IT companies could hurt the sector in the short to medium term but may prove beneficial over a longer period as more jobs shift to India.
He said the restrictions could create temporary uncertainty for companies specifically named in the US government's order, potentially affecting their operations and profitability.
"The way I see it is it is a short-term to medium-term negative for the IT stocks or IT companies which have specifically been named in that order," Baliga said.
However, he believes the restrictions could encourage companies to move more jobs from the US to India, potentially reducing their operating costs over time. He expects such a shift to take place over the next year and a half to two years rather than immediately.