Why this is right time to invest in equity mutual funds

Below is the verbatim transcript of Navlakhi's interview with CNBC-TV18.

Q: We have seen foreign investors bringing in flows into our equity markets and yet recent data shows that mutual funds have been net sellers. What is the reason they are facing this kind of redemption pressure? Logically, wouldn't this be a good time to be buying?

A: Mutual fund investors have got tired so they have been waiting on the sidelines with their investments, which have been in the red and when they start seeing it getting into the black, they decide to bailout. Our view has been quite the opposite ever since the time in September that the government decided to hike diesel prices by 10 percent and somewhere around that time when the index was 17,300 level, one has not seen 17,000 since that time.

It has crossed 18,000 and then hovered between 18,000 and 20,000 from that time on and essentially investors must remember few macro and fundamental reasons why they should invest in equities.

In the short run of course there are sentimental reasons and that is why there is some selling pressure, but long-term investors, I can see a whole bunch of positives in the market as follow:

(1) we are at the top of the interest rate cycle, we are seeing that interest rates are going to come downwards and whenever that happens it is typically very good for corporate

(2) valuations have now dropped below the long-term average so it is not like dirt cheap, but it is certainly a time when one should consider investing in Indian equities

(3) internationally also we are getting supported on two fronts; one, commodity prices have fallen sharply and as a result of that one has seen the impact on oil prices etc so the subsidies that Indian government had on petrol and diesel, apart from their increasing prices on one side the subsidies have dropped because international prices have also dropped and simultaneously one is seeing that the quantitative easing by US and Japan is continuing so one is seeing flows continuing to come into the market.

Therefore, whole bunch of reasons why I would recommend that people do look at equity markets.

Indian growth numbers, gross domestic product (GDP) numbers were not very good but if compared with the international markets, they are relatively much better and the fact of the matter is that in the long run it is profits of companies and the growth in profits of companies, which will dictate the type of returns one make in the equity markets.

So, I would strongly recommend people to look at equities as an asset class, consult financial advisor and look at asset allocations. Therefore, I am not saying go overboard and pump in all money today, but certainly look at asset allocation and the amount that need to add to equity. One way of reducing the risk is to enter in a staggered manner.

So I can see whole bunch of reasons and when one look back at September to today on macro front, one do not know what sort of reforms or what sort of issues -- there have been issues on political front, corruption front, but over the years India has proved far more resilient and I do see scope for investing in equities.