MF show: If you're in, stay put, else hold your bets

MUMBAI: In the run up to the Sensex topping 20,000, retail investors in mutual funds have been cashing out. According to data released by the Association of Mutual Funds of India, or AMFI, equity mutual fund schemes have witnessed net outflows of Rs 7,700 crore during June-August 2010 indicating that investors have been redeeming their units despite the market rising by about 13-14% during the period.

While current valuations are indeed tempting enough for investors to book profits, is it the right time to redeem investments or stay invested?

Some fund managers, such as Srividhya Rajesh, fund manager, Sundaram BNP Paribas AMC, say that those who have stayed away so far should wait for a while before investing. “The past one month has seen a lot of global liquidity chasing the market resulting in a sharp rise. Investors should tread cautiously,” said Ms Rajesh.

According to her, those who have not yet invested would be better off staying away from equities for the time being. However, those who are already invested should wait till October before taking a call. “If the markets continue to move up at this pace, investors can consider booking some profits. But a marginal correction can be seen as a good opportunity to buy,” added Ms Rajesh.

Echoing Ms Rajesh’s views, Anand Shah, head-equities of Canara Robeco AMC said that new investors should not enter the market at the current levels unless they have a 5-10 year investment horizon.

However, A Balasubramanian, CIO of Birla Sun Life AMC, said that it’s the right time to stay invested as both economic and corporate fundamentals are good. While he does concede that valuations are stretched right now, he does not see a bubble building up as he reckons that money is flowing into good companies. “Investors can expect a five-year bull market, with minor corrections, to enter into. So they should rather stay invested.”

With both mid- and large-cap stocks faring well in the current rally, fund managers believe that a diversified multi-cap portfolio is the best investment option at the moment.

Sankaren Naren, CIO of ICICI Prudential AMC, suggests that while this may not be the time to buy or rejig the portfolio, new investors could look at investing in funds that bet on infrastructure growth even at the current levels. “Despite the rise in the market, the sector continues to seek relatively reasonable valuations” he said.

Infrastructure funds have been subdued over the past year-and-a-half despite the market recovering handsomely since the subprime crisis. Many infrastructure stocks continue to command valuations much lower than what they were seeking last time when the Sensex hit the 20,000-mark. That is why fund managers expect infra funds to do well in the near term.

Mr Shah of Canara Robeco said that while the market has become expensive, there is still a lot more money to be made from 3-5 year perspective and hence it does make sense to stay invested.