Investment Faqs with Parimal Ade (Investment Satsang- 25)

3 min read

Here are some questions asked by the viewers in the Investment Satsang dated 17th December 2021. Answers to these questions can provide you with some useful & meaningful insights. The purpose of these Q&A is to provide knowledge and guidance. These are not investment advice, therefore,  the investment decision shall solely be based on your research and analysis or to be discussed by your financial advisor.

Q  How will the banking debt funds behave for the short term looking at the country’s increasing interest rates?
Parimal Ade:

• When interest rates are going up it is better to stay invested with floating interest rate kind of funds, as the yield increases the NAV of the funds goes down.
• So it is better to stay invested in shorter duration funds which are of less than a year tenure.

Q  How should one focus on the under-penetrated sectors?
Parimal Ade:

• Currently, if there is under penetration in a particular sector and gradually people start entering into this market, then such sectors possess the capacity to outperform and contribute more to the growth of the economy.
• Due to this reason such sectors are also called growth sectors.
• Moreover, such growth sectors usually trade on higher valuation or at a premium.

Q  How does the interest rate help the economy?
Parimal Ade:

• It is seen that when demand is high and supply is less the inflation increases. So when inflation increases the interest rates are also increased to reduce the money supply in the economy.
• The central bank increases inflation to match the demand and supply equation.
• The demand is high due to good earnings but such demands are not met by the supply side which leads to inflation.
• Vis-a-viz if the demand is low and supply is more then the inflation will go down the cascading effect will be seen in the interest rates as well.

Q  Why is the Indian market falling? Do FIIs have any role to play?
Parimal Ade:

• Initially, the FIIs used to be a dominant factor in the market and were considered intelligent investors due to which everyone followed their footsteps. But as the domestic inflows have increased, the conditions have changed and we are in the position to counter them.
• As we all know the market does not rise vertically. It always follows a zig-zag pattern wherein the market soars high and comes down for a pullback. Since March 2020 there was a phenomenal rally in the market and the market was up by 125%. So one should not be worried about the downfall in the market as it is a pullback that was impending and was likely to come.
• It was seen that 10 trillion dollars were infused in the emerging markets. So the easy liquidity that was provided in the market is now been taken out. So the outflow is expected in the emerging market especially towards the equity side.
• Apart from that, it seems to be a typical year-end selling in the market.
• The Indian markets are falling because of high alpha creation as the inflow was high.
• It is not just the Indian market that is falling, overall global markets are also plummeting.

Q  While investing in a mutual fund when the AUM grows high is it good to exit as it may underperform in the future?
Parimal Ade:

• It is very important to observe the consistent performance of a mutual fund from the last 4 to 6 quarters.
• If that fund is underperforming and is unable to beat the benchmark and category average then it is better to get out of that fund.
• Therefore, rising AUM shall not be the only criteria to exit from the fund.

Q  What are the sectors which will be benefitted from the rising interest rate?
Parimal Ade:

• In a rising interest rate scenario, there are no direct beneficiaries.
• Whenever the interest rates are increased Fixed Deposits are late to implement the increasing interest rates. But the interest rate on loans starts increasing immediately. And this benefit is reaped by the banks.
• When we hear the rising interest rates the markets go in the negative side due to sentimental drive. But the change in interest rates improves the operating margins of the bank in that tenure.

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