Powell is the Chairman of the Federal Reserve, the central bank of the US.
“Till 2008, people used to think that fund managers control the market. But the reality is it is the global central banks, which controls it,’ he said at ‘ETF Masterclass – Rise with India’ organised by Paytm Money.
Naren said investors need to thank the US Federal Reserve, followed by the European Central Bank, Bank of Japan (BoJ) and UK’s BOE (Bank of England) for the immense liquidity support.
“The day these central banks decide to roll back the liquidity support, the market can come down significantly, say 10-20 per cent, and that too very fast. Equity market is, thus, controlled by central banks,” he said.
Naren noted that equity fund managers are seeing redemption pressure, despite which the domestic stock market is rising every single day.
On Friday, the benchmark indices ended higher for the sixth trading day.
“So, one needs to watch out for the US Federal Reserve’s moves. On a fine day, if the Fed decides that it needs to care of inflation in US and it does not matter what happens to the market, that day the market will fall significantly,” he warned.
“There is no one in India who can determine where the markets will come up. Equities are not cheap in India and thus one needs to also keep money in equity, debt and gold,” he said.
Naren advised investors to consider exchange traded funds (ETF).
He recalled that once an investor asked legendary investor Warren Buffett to suggest the best way to invest over the next 50 years. “Buffett said the best way is to put the 90 per cent of the money in S&P500 and the rest in government securities,” he noted.
Naren said that one will soon see an array of ETFs in India.
He said that there may be a period where one-year returns on a smallcap ETF will be very good, but the return for largecap ETF would be bad.
“That would not mean that the largecap ETF is bad. Actually, it would be much better to invest in a falling ETF,” Naren said.
He noted that Bharat ETF managed by ICICI Prudential for the government had been among the worst performing ETFs in the market in terms of returns.
“Look at it now. It has made a dramatic return in last two months. In ETFs, one needs to be really careful when something has done extremely well and less worried if something has done extremely bad,” Naren said and advised investors to invest in ETFs with a high numbers of stocks, as what Buffett suggested in the case of S&P500.