A Well-Diversified Portfolio Can Help Shield Investors In The Volatile Market

Amidst volatility in the domestic stock market caused by weak global cues, tariff-related uncertainties and diminished consumer confidence, have impacted the inflows into the mutual fund industry in the month of February. Hence, retail investors need to go for a well-diversified portfolio to shield themselves against such volatile market conditions and continue to invest through systemic investment plan. It is crucial to evolve pragmatic strategies to consolidate the position. Net equity mutual fund inflows remained positive for the 48th consecutive month in February at Rs. 29,303 crore, no matter if this represented a 26 per cent decrease from the previous month. This resulted in the benchmark BSE Sensex TRI experiencing a month-on-month decline of over 5.5 per cent. Gross equity inflows also saw a reduction of 18 per cent, to Rs. 54,428 crore. While net investments in small-cap fund category decreased by 35 per cent to Rs. 3,722.46 crore, and inflows into mid-cap funds fell by 33.8 per cent to Rs. 3,406.95 crore, large-cap funds experienced a more modest decline of just 6.4 per cent, reaching Rs. 2,866 crore.

All equity fund categories, as per ITI MF, apart from focused fund category, experienced a dip in net flows during the month. Additionally, net inflows into sectoral/thematic funds decreased to Rs. 5,712 crore, attributed to a reduction in capital raised by new fund offers. Consequently, the total equity assets under management now account for 42.5 per cent of the mutual fund industry's total AUM, which stands at Rs. 64.53 lakh crore. On a month-on-month basis, total inflows into domestic mutual fund industry witnessed a drop of 78.64 per cent at Rs. 40,063.36 crore in February, as against an inflow of Rs. 1,87,550.96 crore in January. On a year-on-year basis, total inflows declined by 66.15 per cent from Rs. 1,18,350.80 crore in the year-ago period. As can be noticed, sectoral/thematic funds witnessed heightened activity till a few months back with investors flocking to these funds.

However, the current volatility in the market coupled with the poor performance of some of these sectors such as defence, has negatively impacted the returns on these funds, which, as per Icra, are suitable for those investors who understand the dynamics of specific sectors or themes and can accordingly evaluate their growth prospects and risk-taking ability effectively. For retail investors, it is advisable to have a well-diversified portfolio to shield themselves against such volatile market conditions. The diminished consumer confidence, reduced consumer spending and tariff-related uncertainties continue to dampen the growth outlook, and markets may witness some short-term volatility in the near term due to higher valuations and geopolitical tensions.

However, market corrections are opportunities that have been traditionally used by value investors as it is essential to focus on long term sustainable growth.

With the structural growth story of the country’s economy remaining intact and India a bright spot in the global economy, analysts expect retail investors to continue to take the SIP route.