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Markets have given good returns after every correction, says Harsha Upadhyaya

Mutual fund managers and advisors believe that small and mid cap categories are poised to take off now.

, ET Online|
Updated: Oct 17, 2019, 08.57 PM IST
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ET Online
harsha upadyaya
Small and mid cap mutual fund schemes have taken a hit in the last one year. Both the categories have offered negative returns during the period - small cap mutual fund categories have offered -9.20 per cent and the mid cap category gave -4.62 per cent returns in the last one year. However, mutual fund managers and advisors believe that both these categories are poised to take off now; they point to the historical data to back their claim. Harsha Upadhyaya, head- equity, Kotak Mutual Fund, also said historical data surely shows that a sharp correction is always followed by a smart recovery.

"It is not sure whether it will really happen this time, but data surely says it does," said Harsha Upadhyaya. He was talking to participants at the 13th edition of the ET Wealth Investment Workshop held in Bengaluru. Upadhyaya talked about 'Sustainable wealth creation with active management' at the investment workshop held on June 14.

Harsha Upadhyaya quoted historical data and showed how the market has performed after every big correction. He also told the participants that there are expectations of the markets doing well after the 2018 phase. “Whenever there is a fall in the market, we have seen investors regaining in the next year. The mid cap segment went down by 31 per cent in 2011, but offered 39 per cent returns in the next one year after the correction. Similar things happened in 2008 and 2001,” said Upadhyaya.

He pointed out that the small cap segment fell by 71 per cent in 2008 but gave 107 per cent returns in the next year. “Market is like a pendulum, it comes back after a fall. It never stays there,” Upadhyaya said. See table to know more:

Mid cap performance
Year
Current year return

Next 1-year return

Next 3-year CAGR

return


2001

-30%

24%

55%

2008

-59%

99%

18%

2011

-31%

39%

27%

2018

-18%

?

?


Small cap performance
Year

Current year return

Next 1-year return

Next 3-year CAGR

return

2008

-71%

107%

17%

2011

-34%

37%

25%

2018

-32%

?

?

Soure: Kotak AMC

Harsha Upadhyaya also stressed on the fact that investors seeking returns from equity market should also be ready for risk. Many mutual fund advisors and managers say that investors don't know their real risk appetite until a correction hits their portfolio. Quoting historical data, Upadayay said that Sensex lost as much as 60 per cent from its January 2008 peak in less than twelve months. Around 80% per cent of the listed companies have failed to deliver ‘real’ returns over the last 20 years. "Last year an IT company crashed by 90 per cent. That is the kind of fall that is possible in the market. Investors should know this when they are investing," Upadayaya said.

He also quoted John Bogle, the legendary American investor, to drive the home the point: “If you have trouble imagining a 20 per cent loss, you shouldn't be in stocks”.

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