40After40 Retirement Expo: Investors Shouldn’t Get Complacent, Must Closely Look At Risks, Says Ananth Narayan

Investors are getting more complacent in the market due to better risk-to-return ratios in the last fiscal year. Instead, they should take a closer look at the risks and volatility, said Ananth Narayan Gopalakrishnan, a whole-time member of the Securities and Exchange Board of India (Sebi) at Outlook Money’s 40After40 Retirement Expo on Friday. 

“Better risk-to-return in the last FY has led to market complacency. Last year, the VIX (Volatility Index) was just 10 compared to 28 per cent returns. Further, in FY 24, there was a demand-supply mismatch between capital inflow and fresh IPOs, whereas there was no considerable mismatch in FY 23. This is also a sign of market complacency,” Narayan said. He said the sole focus on returns has led to underestimating the importance of understanding and managing risk in the market journey. 

According to Narayan, risk measures how bumpy the market journey is, which is as important as returns. Many financial advisors underplay risk, he said, adding, “Don’t worry about the journey. Just worry about the risk.” I think this is bad advice because everyone has their own risk appetite. A bad job has been done of describing the risk involved in the market journey by focusing more on the returns." 

Increased Volatility & Outflow: Should You Worry? 

Narayan believes that the recent volatility and FII outflow should not cause concern. “There is no reason to fear the current volatility and FII outflow, Naryan says. Due to the huge influx of young investors under 30 in the last few years, Narayan feels they should see a downcycle and volatility to better assess the risk going forward,” Naryan said. 

To better control the risk, he suggests diversification across asset classes. “The closest thing to a free lunch is diversification,” Narayan says 

 F&O Frenzy 

Addressing young investors investing in F&O, he said, “The more you trade, the less you make,” because of transaction charges, STT and brokerage charges. Instead, he advocates for most investors, diversification across asset classes and timely portfolio rebalancing, which he believes can generate more wealth than attempting to time the market through active trading. 

Regarding recent changes Sebi imposed on F&0 trading, Nrayan said, “Sebi is not against Futures and Options and speculative trading. We want F&O for better price discovery, risk hedging and increased market depth.” Narayan said that Sebi only wanted to restrict the increased frenzy in index options on expiry day as many investors use them like slot machines at a casino.