All the risk now lies with investors, warns ICICI Prudential AMC’s Sankaran Naren

ICICI Prudential AMC’s Chief Investment Officer, Sankaran Naren, has cautioned that India’s capital market has entered a new phase where the entire burden of risk now rests with investors instead of banks or institutions.

Speaking at the Morningstar Investment Conference India in Mumbai, Naren said that earlier rounds of capital investment in the country were funded by development financial institutions such as IDBI, IFCI and ICICI, followed by banks in the 2007–08 cycle.

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“The bigger challenge for the entire investor community is that every risk is taken by the investment community. Banks are not lending for anything risky. There are no development financial institutions anymore. The risk-taking for the entire country today lies with the investors,” he said.

He pointed out that mutual funds have created specialised vehicles across small-cap, mid-cap and multi-cap categories, but rising inflows often push managers to invest in expensive stocks. “If SIPs come in costly midcaps, the midcap fund manager will invest in costly midcap issues,” he said, adding that valuation risk has shifted entirely to investors.

Naren also expressed concern that while many investors claim to have long-term goals, few stay invested through market downturns. “Everyone says they are investing for 20 years, but very few stay for even 10,” he said.

Highlighting high valuations and continued selling by private equity investors and multinational promoters, Naren said these trends suggest that knowledgeable sellers are exiting at expensive valuations while retail investors continue to buy.

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“There is nothing wrong with the fundamentals or the macro environment. The problem is that investors are focusing only on equity,” he said. Naren advised investors to diversify and include debt and balanced advantage funds in their portfolios. “Do not put everything into one asset class. Asset allocation is the only way to stay safe,” he added.