Index funds offer underlying opportunity, says Anand Vardarajan of Tata Asset Management
MintGenie, Vardarajan said that there is an ardent need to look at index funds for their underlying opportunity rather than just their low expense ratios. We believe that the banking and financial services sector is attractively positioned from a valuation perspective. Pharma hasn’t participated much in the up move and this could benefit from a medium to long-term perspective.
The IT sector could offer some good entry points this financial year. I think one should look at index funds not just from an expense perspective but for what the underlying opportunity is. Take the case of the auto industry which is at the cusp of a massive technology change and is actively moving from fossil fuels to electrical vehicles (EVs).
It may be difficult to say who could be the big winner in EV in the future but if you buy the entire index you could be sure to co-own the big winners and the losers. I don’t get tired of saying that index is a big leveller and compounder. Take the case of Sensex which hit 75000 recently; it started in the year 1979 at 100 and has moved to 75k.
In roughly 45 years it is up 750 times! We have seen wars, sanctions, frauds, global crises, coalition and majority governments, economic crisis, sanctions, and the recent pandemic! Several stocks have been a part of the index which don’t exist today and several stocks which were not a part of the index are now a part of it. It has an automatic way to keep churning in and out. One only needs to have the patience to sit through.
Like they say you need the vision to see them, the courage to buy them, and the patience to hold them. We keep evaluating ideas that will add value to client’s portfolios. There is no specific reason why we chose to do all of them together.
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