The CEO of a mutual fund explains how to divide your savings in the post-Coronavirus era

• A Balasubramanian, MD and CEO of Aditya Birla Sun Life AMC, explains how investors should divide their savings and course-correct their portfolio post the Coronavirus crisis.
• The Coronavirus crisis has led to a sharp fall in large cap stocks as well, giving investors an opportunity to move from mid cap to large cap, he says.
• He also advises investors to stay calm even though their investment value has eroded, since there will be a reasonable uptick once this crisis blows over.

The Coronavirus pandemic has led to an unprecedented crisis across the world, destroying lives, jobs and economies of all the countries in its path. From citizens to businesses, everyone has been caught unprepared. This resulted in the destruction of investor wealth, wiping out years of savings in the process.

“The COVID-19 crisis has hit the world and led to a sharp fall in the economic growth expectations. In my own life in the capital markets for the last 30 years, this is something which is being seen for the first time,” said A Balasubramanian, managing director and CEO of Aditya Birla Sun Life AMC.

People will question long-term returns from Mutual Funds, but they ‘should stay calm’

After the market meltdown, people have turned anxious about their returns from mutual funds as well.

“Such a sharp fall has naturally eroded the value of the investment. However, any big fall is followed by a reasonable uptick. Generally, investors should not bother too much about. People should stay calm and cool at this point of time,” Balasubramanian said.

For people who have money to invest, he suggests them to make ‘partial investments at those current levels’. For those who don’t have fresh money to invest, his advice is to relook at the investment portfolio to see if it needs course correction.

Additionally, Balasubramanian also thinks “it makes sense to shift some of the investment portfolio from mid-cap to large-cap” as the value of large-cap stocks fell significantly over the last two months.

Demand will come back, because ‘mind is like a monkey’

Covid-19 could have a long-term impact on businesses. Even if sectors like manufacturing come back to normal, others like aviation might be impacted for the long-term.

“There are certain habit changes that have come as a result of COVID-19. For example, the frequent flights that people used to take could come down,” Balasubramanian said.

An incident like Covid-19 might have a lasting effect on people’s minds for about a year or so, because ‘mind is like a monkey’.

“After one year or so, life will be back to normal. Till such time, we will see some of these sectors impacted, not completely wiped out,” he added.

In fact, he believes that even non-discretionary spending might pick up. And these could include even cars whose sales have been slowing down for over a year now.

Foreign investors will come back

According to data obtained from the National Stock Exchange (NSE), Foreign Institutional Investors (FII) have pulled out nearly $15 billion (₹1,08,275 crore) in March alone.

In fact, in January and February FIIs had been pumping in money before the Coronavirus crisis peaked.

Once the issue blows over, Balasubramanian believes that FIIs will come back to India. He also notes that the reduced interest rates will also ‘force’ FIIs to invest in India again.

“US interest rates have fallen to 1%. So naturally they have to go look for opportunities outside their own domain. In six months, you will start seeing foreign investors’ money coming back to India,” he said.

High valued stocks will have to settle for a new normal

The BSE Sensex price-earnings ratio hit a 20-year high of 28.29 in July 2019 while the average PE ratio over the last 10 years is 20.82. This suggests that the stocks were overvalued.

Coronavirus concerns and a global slowdown has dragged the PE ratio back in the fair valuation zone – as of March 2020, the Sensex PE ratio was in the range of 20, which is around its 10-year average.

“Economic recovery will not come back in a fast track manner – it will be gradual,” added Balasubramanian.

Here’s how some high valued stocks have seen a correction in the first three months of 2020:


Source: NSE

*since December 31, 2019 till date

‘There is going to be a corresponding drop in bank fixed deposits as well’

With the government cutting interest rates on small savings schemes by up to 1.4% points, Balasubramanian believes fixed deposits might end up giving litte returns as well.

“If somebody goes to a Post Office and says I want to deposit ₹1 lakh, they may probably get interest of 6.5-7%. So, there is going to be a corresponding drop in bank fixed deposits as well,” he said.

Mutual fund fixed income schemes also provide a great opportunity for those seeking long-term investments. They are perfect for those looking for long-tenure investments between 3-10 years and wanting to save tax, he says.

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