Exclusive: ‘This is the time to accumulate for the next few years’ Q&A with Sailesh Raj Bhan, CIO - Equity, Nippon India MF

How do you see the impact of volatility and correction in the last two years in the equity markets?

The last two years were challenging markets to seek value because it was difficult to buy at the right prices. But with the prices correcting by 20-30% in a lot of segments, the prices are becoming sensible. This means that the deployment of funds is happening at better prices after correction due to FII selling and challenges due to the West Asia war.

Some investors like those who entered the markets in the last three years or large investors/HNIs who need capital for their own businesses might be more affected due to this recent correction. Investors who are unwilling to book losses currently may sell when markets rebound, leading to a churn.

Currently, investors who have started investing small amounts in the last one year are leaving the market due to low returns. However, if there is a sharp correction due to an extreme event like oil prices reaching $125 per barrel, then we can expect the earnings to be challenging for a few quarters.

How is the present market correction different from major corrections of the past?

A basic difference in the present correction due to war in West Asia is that it has followed a period of flat market for a period of over 2 years since September 2024. Due to this, the euphoria before the correction starts is not there. Secondly, the corporate balance sheets are unleveraged, the government balance sheets are fine. So, if the conflict is resolved soon, the second half of the FY27 could be positive. A longer conflict that goes for 2 to 3 more months could lead to market volatility stretching for the entire fiscal.

How is your fund house positioning itself in the current market?

We don’t believe in holding cash beyond 5% in most schemes. We do not aim to eliminate the market risk as it is a part of equity investment. Instead, the focus is on doing relatively better than the benchmarks through bottom-up stock selection. No one can time the markets consistently, so, it is better to prioritize investment in good businesses at attractive valuations and reduce complexity in investment decisions.

How do you see valuations in the current market?

The valuations are much better now than in the last 2-3 years. The markets fell by over 10% in March after staying flat for two years, which is why we see attractive prices. This is not the time to say there is too much risk but to use this correction to accumulate for the next few years.

Investors can also consider preponing their SIPs by doubling their SIPs this year and convert this into an accumulating year. We are currently focusing on buying two kinds of companies: high-quality, world-class businesses available at sensible prices and good companies which have seen a sharp decline due to sell-off and are available at reasonable valuations for their growth.

Do you see the FIIs coming back after the recent sell off?

Currently, there are concerns about oil prices and lack of AI opportunity for investment in India. With valuations now getting better, India’s positioning should improve versus other markets in the next few quarters. Investors should see this as an opportunity to buy good businesses at attractive prices, a large part of this especially in large companies created by the sell off.

SEBI has allowed higher allocation to commodities and investment in REITs for equity funds. How do you see this change?

We may not want to change the core allocation of the equity schemes. So, we may use this for a small part of our portfolio to enhance risk adjusted returns, while maintaining the risk profile and character of the fund.