Till about 2 years, whenever Nifty trailing PE traded above 22, 1 year forward return was negative. Last 2 years’ Nifty moves have defied this trend. Making the current Bull Run a “Joyless Ride” for many. Several knowledgeable and arguably smart investors who extrapolated the past trend of equity valuations have missed it. However, most retail SIP investors have got it right! So far. The divergence and lopsided surge in Nifty (in the year 2018) have added further pain of opportunity loss.

In personal finance, “Regret” is the greatest enemy of good decision making. Nobody can go back and start a new beginning, but anyone can start today and make a new ending.

Our economy and markets have come a long way over the last few years. We have witnessed the beginning of the liquidity super cycle in the form of large long term money coming in from EPFO and retail investors. Both accounting for a whopping 100,000 cr. + of stable annual flow! We have also seen our monetary policy staying committed to Inflation Targeting. This will result into sustainably low inflation and eventually lower interest rate regime. Several structural reforms initiated will yield significant gains over long term. And finally, the earnings cycle has turned

Does it mean that valuation metrics are redundant now? No. Market can remain irrational for long but not forever. Valuation has always been a useful guide and I believe will always remain so.

So key question is where do we look to allocate our incremental growth capital?

• In this rally, my biggest discovery is the power of Aggressive Hybrid Funds. The auto rebalancing feature that these funds offer for equity - debt composition has an unbelievable utility value. The periodical rebalancing prevents the portfolio from becoming riskier or safer than intended. It obviates the need for investors to worry about asset allocation, market timing, taxation and rebalancing. Most importantly, it’s so very simple. No wonder the Fund category has delivered long term returns that are comparable to diversified equity fund category, with roughly 2/3rd of its risk.
• In the Institutional Sales segment, we are seeing investors moving to Liquid, Money Market and FMP categories. We believe the tight liquidity situation in the second half of this FY and over 8% yield on G-Sec will offer greater opportunities to our investors to rebuild their active long term portfolios.

Another category of funds which I believe you must consider having in your long term portfolio are Accrual / Credit Risk Funds and International Fund so as to add stability and hedge to currency risk and domestic macro, respectively.

Wishing you all a very Happy Festive Season and Happy Investing!

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.