Financial services will continue to dominate the markets for next 3-5 years: A Balasubramanian, Birla Sun Life Mutual Fund

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The second wave of the Covid-19 pandemic has turned the stock markets jittery. The markets could exhibit further depending upon the extent of the second wave and curbs imposed to curb the virus. A Balasubramanian, CEO, Birla Sun Life Mutual Fund, shares his view on the market outlook. Edited excerpts:

What kind of impact do you see the second Covid-19 wave is having on the economy and on the markets? From the economic point of view, after having seen the year ago period, when the Reserve Bank of India and the Central Government took collective measures to revive the economy, there were many unknowns. It took some time to figure out on how to deal with these unknowns. While the second wave is undoubtedly spreading faster than the first wave, but the unknowns are less. And I would assume it won’t have a major impact on the economic growth. Besides, the vaccination drive is also progressing. May could turn out to be a relatively weaker month in terms of economic activity but in the subsequent month things could get back to normal.

Retail investors now prefer to invest directly in the stock markets instead of MF route. How do you see this trend playing out in the coming month? Globally, retail participation in equity markets weather directly or through mutual funds especially in the US is pretty high. In India, investors have gone back to the equity markets during the pandemic by improving their understanding about the markets, which is a good sign. This will add value to the mutual funds given the fact that the MFs have seen market cycles. MFs managing diversified equity portfolio have generated good investor experience and I think investors will gradually migrate from direct equities to MFs.

How retail investors should deal with the current market volatility? Continuous investments in mutual funds is the key to building a long term portfolio. During the same time last year, those who remained invested, they have seen a substantial growth in their investments.

How debt market returns play out? Just like equity market, debt market also goes through ups and downs. From retail investor’s perspective, I think short-term debt funds will help them tide over lower interest rates.

What sectors are being tracked by you and your fund managers closely with a 3-5 year horizon? Financial services will continue to dominate the markets followed by FMCG companies and pharma companies. These sectors will remain focus areas for money managers.

The second set could be of cyclical sectors – global and domestic. Global cyclical sectors look at the commodities space and are likely to perform well for the next two years. Once we are out of pandemic, low interest regime would drive the consumption demand especially in the auto sector.

Complete interview of A Balasubramanian