The second wave of Covid-19 has shocked the entire nation with rising number of cases and deaths. While lockdown restriction has checked the rising number of cases to some extent, it came at a cost of employment, business and overall economy.
It is very likely that India’s second wave could be a prolonged one compared to other countries. But there have been some signs of improvement especially on the vaccination front. India has banned exports of vaccination and expedited its manufacturing while opening up trade barriers for international pharmaceutical companies. By May end, India’s 50% population in the age group of over 45 years will be vaccinated.
In addition, the economy has been showing signs of recovery. High global liquidity and government’s domestic push with the expansion of production-linked incentives schemes are expected to accelerate growth. Also, organised sectors have been gaining traction post demonetisation and GST implementation and the pandemic is seen further driving this shift.
Currently, stock market has taken a breather due to increase in bond yields and lockdown across states. Bond markets likely to remain range bound as RBI is focusing on pushing growth.
What should MFDs do?
Despite the pandemic, equity funds still make lot of sense from medium to long term perspective. With GDP growth expected to be around 10-12%, equity funds can deliver handsome returns in the coming years. Given the improving macroeconomic conditions, it is very likely that the economic recovery will gather pace in the medium term.
In terms or category of scheme, with outlook for the mid and small cap expected to be better, MFDs can consider recommending multicap funds to their clients. These funds are well-diversified across market capitalization with at least 25% in large, mid and small cap stocks. Besides, fund managers have flexibility to increase exposure beyond 25% depending on their outlook.
Jitendra Agarwal is a Chartered Accountant of Jaipur. The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
