Last month saw equity markets revolve around lifetime highs and sharp corrections. While Sensex crossed 37,000 level for the first time, Nifty scaled over 11,000 mark again buoyed by robust first quarter earnings by market heavyweights in IT, NBFCs and private bank space. Along with large cap stocks, some mid cap companies posted earnings above expectations. Despite interim turbulence, India’s most tracked index, Sensex closed the month on a high note, gaining over 6%.
Along with corporate earnings announcements, the ruling party winning the no-confidence motion was also seen as a positive. Additionally, the government’s decision to slash GST rates from 28% to 18% on around 50 items gave a boost to the consumption story. On the other hand, trade war woes and selling pressures in metal and pharma stocks negatively affected equity markets in July.
We spoke to a few fund managers to understand the equity market outlook for this month based on last month’s events and its impact.
Jinesh Gopani Head – Equity, Axis MF expects the markets to remain volatile in August. “The month will see many companies announcing their quarterly results and market participants will closely track them for cues. We are largely positive about earnings of large cap stocks while mid and small cap earnings are expected to be a mixed bag. A further reduction in oil prices will positively affect the market. Market will also take cues from trade wars news and central bank’s tone in the monetary policy review meeting. In this scenario, we feel that equity investors should consider investing in large cap funds and multicap funds,” said Jinesh.
Gopal Agrawal, Senior Fund Manager and Head - Macro Strategy, DSP BlackRock MF expects markets to track corporate earnings, crude oil prices, progress of monsoon and trade related developments between US and China in the near term. “Markets are likely to be volatile in the coming month. The current rally in markets is largely due to positive earnings announcements, improving macro- economic indicators and better tax compliance. The focus on rural consumption is another positive for the market. In the current scenario, investors should take a staggered approach to investing. Investors can consider investing in multicap funds as this is stock specific market,” said Gopal.
Pankaj Tibrewal, Sr. Vice President & Fund Manager (Equity), Kotak MF mentions that the earning season so far has been better than expected. “Over the next 15 days many companies will announce their results, which will influence markets. In addition, market participants will closely watch global events, policy stance from China in the near term. In this scenario, investors should look at disciplined asset allocation towards large cap and multi cap funds. Additionally, investors can take a small allocation towards mid and small cap space as post correction, these funds look slightly more attractive compared to six months ago.”
On the completion of 10 years of global economic crisis, Kartik Soral, Senior Fund Manager, Shriram AMC, “The world had a great crash in the global economy in 2008 that started from the United States and then spread to all the major economies of the world including India. Now, after 10 long years, we finally see some signs of respite – almost every big economy of the world is expected to grow in 2018 an effect, which some economists of our time have called the synchronous growth. Data other than GDP growth, also seems to suggest this – unemployment is down in major economies, manufacturing has started to pick up and consumer confidence levels have gone higher. As economies limp back to growth, major central banks have started to consider rolling back the easy monetary policies they have been running with. US FED has not just stopped easing but has also started to increase interest rates. In other words, Central Banks have started to remove the crutches of easy-money and high liquidity and it is now time for economies to walk by themselves.”
He said, “Generally, talking about the macro-economic trends and scenarios is a futile exercise – there are too many variables, too many linkages and predictions seldom come true. However, we believe that while long-term alpha is generated through high quality research and bottom-up stock selection, risk can be lowered by looking top-down. This belief stems from the fact that most of the bear markets have been caused by reasons, which were ‘macro’ and not company-specific or ‘micro’. Most of the time in the recent past, we have not really been worried about the macro given that interest rates were at all-time low and cost-of-capital wasn’t bothering many investors. But that is changing now. As the biggest experiment of global quantitative easing is rolled back, we will soon find out if recovery indeed has strong legs or the crutches came out too soon.”