'If equities delivered predictable returns, there would be no concept of bank FD': PPFAS' Rajeev Thakkar

For investors who have spent the past two years watching equity markets go largely sideways, there is a fairly obvious question: Why take the risk of equities if they are not even delivering the kind of returns one expects?

Rajeev Thakkar, Chief Investment Officer – Equity and Director at PPFAS, addresses that question in his latest note to unitholders, where he pushes back against the growing comparison between equity returns and bank fixed deposits.

The problem, he says, is expecting equity markets to deliver predictable returns over short periods.

His point is very clear that the possibility of earning higher returns from equities comes with volatility.

“The precise reason why equity investments can ‘potentially’ deliver higher than fixed deposit returns is the accompanying volatility,” he says.

Thakkar's comments come against the backdrop of what he describes as about two years of equity markets not delivering the returns that some investors had been hoping, expecting or predicting.

But he argues that there is nothing particularly unusual about this phase.

“Equity markets having a relatively range-bound period or even one where prices come down, happens on many occasions,” he writes, calling the current phase “a feature and not a bug of equity investments.”

For investors, that makes the FD comparison interesting. An FD is designed to offer a predictable return over a defined period. Equity, by its very nature, does not work that way. There will be periods when markets rise sharply, periods when they remain range-bound, and periods when they fall.

Thakkar also believes the current period should be kept in perspective. The sideways phase, he says, is “neither noteworthy for its duration nor for the magnitude of fall from the peaks.”

The comments come as PPFAS itself faces questions around the performance of its equity schemes, particularly the Parag Parikh Flexi Cap Fund. Thakkar acknowledges that this has become a “burning” topic and says the fund house has been communicating with investors, distributors and advisers through various forums.

His latest note, he says, is intended to address the chatter around the funds and put the current market phase in context.

For investors, however, the larger takeaway from his FD comparison is simple: equity cannot be judged by the same expectation of predictability that comes with a fixed deposit.

Thakkar’s message to investors was simple: if their equity investments are part of a well-thought-out asset allocation that suits their needs, there is no reason to be overly concerned about the current market phase.