Markets will revert to normal, just wait

Departures from the normal are sometimes hard to recognise, but for Indian mutual fund investors, they have become hard to ignore.

Departures from the normal are sometimes hard to recognise, but for Indian mutual fund investors, they have become hard to ignore. Here’s the current situation in the major asset classes. Equity hasn’t really done anything in more than three years. In debt funds, there is an almost complete convergence of returns between maturities of different time horizons.

HT Image

The only type of fund that has got investors excited for a long time are gold funds. Even within equity, mid-cap funds have performed better in a market decline than large-caps.

None of these things are supposed to happen. Take the simplest case, that of equity investments. It is a cornerstone of investment planning that over longer periods, the risk of equity is minimal and likelihood of high returns, well, high. More than that, it’s supposed to be more or less cast in stone that when the equity markets are skittish, mid-caps and small-caps do worse than large-caps. Large-caps are more liquid; investors have less confidence in the basic quality and stability of earnings in mid-caps.

When you step back and take a high-level view like this, you could be forgiven for thinking that something is seriously wrong with what we thought was the normal. Perhaps something has changed fundamentally. Perhaps, as an investor, you now need to abandon what you thought were the basics of investing and look for a new set.