If new investors see markets fall 5-10%, panic and exit, they may never return: says JioBlackRock AMC’s Swaminathan

Markets have remained resilient despite broadly negative returns over two years, supported by monthly SIP inflows, and this resilience could also attract foreign investors as conditions stabilize, said Sid Swaminathan, managing director and chief executive officer, JioBlackRock Asset Management. However, high SIP stoppages and cancellations point to rising investor churn, particularly among those who started investing less than two years ago, raising concerns about investor persistence. “If new investors see the market fall 5-10%, panic and exit, they may never return,” Swaminathan said in an interview.

More than two-thirds of investors who panic-sell during market declines fail to return in time for the recovery, he said. During the covid market cycle, staying invested could have yielded 20%, while selling at the bottom would have resulted in a 30% loss. Buying at the bottom could have generated returns of around 40%. “The outcomes vary significantly, but consistency and staying invested are crucial to long-term wealth creation,” he said. Edited excerpts:

What’s your reading of the market right now and what is your outlook for the new Samvat year?

Markets have seen a meaningful reset amid geopolitical uncertainty, elevated crude prices and foreign investor selling. We remain cautiously constructive as we enter the new Samvat year. India’s structural growth story remains compelling, but this is an increasingly differentiated market. That calls for greater selectivity, with a focus on where structural growth, earnings visibility and valuations come together to support sustainable returns.

Despite weak returns, SIP inflows remain strong. Are we underestimating risks around investor behaviour?

The past two years have been challenging, marked by a valuation shock in September 2024, Trump’s tariffs, concerns over India’s AI opportunity, and more recently, war and rising oil prices. Foreign investor outflows and a weakening rupee have added to the pressure. Yet, markets have remained resilient, with returns broadly flat over two years. Monthly SIP inflows of ₹30,000-32,000 crore have helped support the market, and this resilience could attract foreign investors once conditions stabilize. However, high SIP stoppages and cancellations point to investor churn, particularly among those who have been investing for less than two years. But investor persistence is becoming a concern. If new investors see the market fall 5-10%, panic and exit, they may never return. The industry has done a good job of simplifying access, though there is more to be done. The next challenge is to educate investors and help them stay invested, because compounding over time is what will ultimately help them build wealth.

With access expanding, what more needs to be done to keep investors invested? Should the focus now shift to building the right portfolio?

Absolutely. Until now, much of the industry’s narrative has focused on products: which fund to buy and which one performs best. But with around 55-56 AMCs and 30-40 funds in some categories, there is product fatigue and too much choice for investors.

The focus needs to shift from picking the best-performing fund to understanding its role in an overall portfolio. Investors need to assess how much equity, debt and commodity exposure they need, based on their goals and investment horizon. Linking portfolios to specific outcomes will be the industry’s next frontier, and this shift is already beginning.

With investment outflows from South Korea and Taiwan, could India attract some of that capital?

Initially, I expected investors to book profits in AI-focused markets and rotate money into India. India's market stability, supported by domestic investors, puts it in a good position to attract these flows. However, currency volatility and rising US interest rates are making investors cautious. This is not an India-specific issue; higher rates are dampening international investments more broadly. I remain confident that foreign flows will return once these near-term uncertainties ease. India has a strong structural growth story and offers relative value compared with other markets. Global investors tend to rotate capital after realizing gains in one market, and India is well-placed to benefit. It is a question of when, not if, these flows return.

Which sectors could outperform, and where might investors find opportunities among recent laggards such as IT and FMCG?

We do not typically make broad sector calls. Our investment process is data-driven and systematic, using more than 400 signals across over 1,000 Indian stocks, alongside data analytics, machine learning and AI. Fund managers then apply their judgement. This allows us to respond quickly to new information, and portfolios may rebalance as frequently as weekly. Within IT and FMCG, investors should look beyond sector-level performance. Both have winners and losers, so stock selection is becoming increasingly important. Rather than dismissing an entire sector, investors need to identify the companies that are performing well within it.

How should investors evaluate opportunities in lagging sectors such as IT and FMCG?

Investors should focus on individual companies’ earnings growth, valuations and responses to macroeconomic trends, rather than making decisions based solely on sector performance. In IT, for instance, how companies are adapting to AI will be important. Ultimately, stock selection matters more than sector rotation, as both sectors have winners and losers.

Which sectors look promising despite recent market weakness?

Financial services stand out. As retail participation in markets grows and investor behaviour evolves, asset and wealth managers could benefit from this expanding opportunity. Credit growth is also beginning to recover after several subdued years, which could make some banking stocks attractive.

What is your advice to investors with a moderate risk appetite navigating current markets?

Stop chasing funds and returns; start thinking about your portfolio. Asset allocation should reflect your ability to absorb risk, investment horizon and financial goals. Risk appetite is not just what you indicate on an app—it is how you actually respond to market declines. If a 10% fall keeps you awake at night, for instance, a portfolio concentrated in small-cap stocks may not be suitable. Keep money needed for near-term expenses in liquid investments, and allocate the rest across assets such as equities, fixed income, commodities and Reits. Technology is making portfolio tools more accessible, while financial advisers and distributors can help investors who need guidance. JioBlackRock has brought BlackRock’s Aladdin platform to India and is making it available through its app. Most importantly, stay invested. More than two-thirds of investors who panic and sell after a market decline do not return in time to participate in the recovery. During the covid market cycle, an investor who stayed invested through the downturn could have made around 20%, while someone who sold at the bottom would have lost 30%. Buying at the bottom could have generated returns of around 40%. The outcomes vary significantly, but consistency and staying invested are crucial to long-term wealth creation.