Investment is always an opportunity; what only matters is whether you are ready for it or not. Every once in a while there will be some developments either domestic or international which will cause tremendous market volatility. In each case only the naming of the reason will differ. The present situation is no different. In the past events like Tech bubble, Lehman crisis, Kargil War, Great Indian Elections and many more came and went by. Currently, the reason for volatility is largely being attributed to Russia-Ukraine conflict, US Fed tapering, and high crude prices.
If one were to take a step back and look at all these events, what one would realize is each of these were occasions for the market to make some adjustments – be it in terms of investor sentiment, Price to-Earnings (PE), market expectations or any other factor. While it is true that in the short run these developments can have a significant impact on the market but in the long run their impact tends to be negligible. The outsized returns delivered by the market over the last two years led many to believe that markets will remain elevated in the foreseeable future. However, true to its nature, a development in the form of Russia – Ukraine conflict soured the market sentiment. It is very likely that this phase could continue till the US Fed tapering halts. In effect, we are poised for some very uncertain times in the near to medium term.
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What should an investor do?
While many may look at such times with great trepidation, what is optimal is to use such uncertain times to one’s advantage by investing into pockets which have been subdued due to irrational doom and gloom. The best way a lay person can make the most of such times is by investing into mutual fund scheme of fund houses with good management and proven track record. If you are an investor who is ready to stay invested for five years and more, such an investor can consider investing in an equity scheme which is based on special situations investing.
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Investing in special situation fund
As the name suggests, special situation could mean events like geo-political or socio-economical events, corporate restructuring, government policy or regulatory changes, or even unique challenges that a specific company or a sector could face temporarily. Owing to such a development, the stock of a particular company or a sector is bound to face a steep correction. However, they point to note here is that this development would not have altered the strong fundamentals of the company. As a result, a fundamentally strong company becomes available at cheap valuations bringing it on the radar of a special situations fund manager.
One of the funds based on this theme which has consistently outperformed its peers over varying timeframes is the ICICI Prudential India Opportunities Fund. The veteran fund manager who is known for his contrarian picks has invested nearly half the portfolio across four different sectors and the remaining across six different sectors. Thus far, the fund given its robust performance has managed to beat most of the diversified equity mutual funds as well.
Things to be mindful of
When investing in a special situation fund, investor should have an investment horizon of at least five years and more. This is because many of the turnaround stories could take multiple years to play out. Another factor one should watch out for is the skill of the fund manager. This can be gauged from the long term track record of the fund. Long term because it will show how the calls taken by the fund manager has panned out. Last but not the least, stagger the investments via SIP when investing in such a fund. This will ensure that one can accumulate units across the investment cycle of the fund.
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To conclude, given the bright prospectus of the Indian economy and consequently the equity markets, over the next decade investor who are ready to make the most of the equity gains can benefit from the opportunities the special situations category can render.
