“ESG risks and opportunities must be at the center of investments”
Investments in the sustainable, or environmental, social and governance (ESG) category of funds, have quadrupled over the past three years and were just above â¹10,000 crore in March. Piyush Gupta, Director of Fund Research, Crisil Ltd, believes the covid-19 pandemic has amplified calls to embrace sustainability and has made a compelling case for businesses, lenders, investors and policymakers around the world, including India, take ESG into account in their decisions. He spoke with mint on the importance of ESG investing and other key investment themes. Edited excerpts:
There is still no standard definition of what qualifies for ESG. In this context, do ESG funds make sense?
ESG as a concept is gaining ground in India. While there is no clear definition of what constitutes an ESG investment, the underlying premise is that ESG as a strategy must take into account environmental, social and governance issues and risks. previously overlooked business emanating from corporate operations as well as taking advantage of opportunities that it can gift. This strategy can be applied in several ways. For example, investors can choose to exclude certain negative sectors or invest only in the best companies in the sector. Regardless of the approach, ESG risks and opportunities must be one of the central points of decision-making to qualify as an ESG investment.
Inflows into equity mutual funds almost halved in June as investors opted for profit making. Would you say this is the right strategy given the market situation?
Investors should avoid scheduling their entry and exit into the market based on short-term rallies. Instead, their investments should be motivated by financial goals and investment horizons.
Investing in stocks is fraught with short-term volatility. Encouragingly, investors have continued to invest in the category through Systematic Investment Plans (SIPs), undisturbed by market volatility.
Small cap funds have received decent inflows thanks to the returns of over 100% generated by these funds. Do you think this space has become risky?
While small cap companies have the potential for high growth, they are also subject to risk. Investors should not be affected by short-term market movements (on both sides). Whichever class of mutual fund they choose to invest in, their decision should be based on the fundamentals of prudent financial planning and their risk / reward profile.
Stocks are expensive thanks to an accommodating monetary policy and huge stimulus injections to deal with the pandemic. Does this justify a higher allocation to bonds?
Finding a balance between equity and debt allocations makes it possible to control the volatility of these two asset classes. The allocation between the two is a factor in an investor’s risk appetite and investment horizon. Between long-term and short-term debt, the allocation must be determined according to the expected interest rate.
Is it increasingly difficult for investors to obtain significant returns without taking additional risk?
Interest rates have been moving at low levels for some time now, which has affected the real returns of traditional fixed income instruments. Thus, among alternative investment avenues, investors have looked at covered bonds and debt mutual fund categories, such as bank and corporate bond funds, given their relatively credit profile. safer.
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