After a strong rally in the equity markets, the markets have begun to show some sign of correction.
The key indices - Nifty50 and Sensex are in red for the sixth consecutive day due to global cues and re-introduction of LTCG tax on equity. While the Nifty50 was down 2.2% to 10,498, the Sensex reached 34,194, a decline of 2.5% in the past three sessions.
We spoke to a few experts to get their views on the market movement to help you address client queries.
S. Naren, CIO, ICICI Prudential Mutual Fund
The correction seen in the Indian equity space is largely owing to the correction in global markets. Since December 2017, a global bull market was underway with some of the indices (Dow) adding nearly 1000 points in just ten-fifteen days. Hence, the market was overbought.
It is difficult to say whether the markets can correct more or not.
Developments in global market and the crude oil price trajectory are near term factors to watch out for.
Today’s market reaction has been on account of global factors. We continue to believe that mid and small cap pockets are expensive. On valuation basis, large caps are better placed. In terms of earnings, we believe corporate earnings growth will pan put over the next eighteen months.
Our approach has been to focus on asset allocation. Having seen big bull markets like 2007 and in retrospect 2017, some of the biggest mistakes that investors make is to forget asset allocation. We believe that equity and debt should be invested in tandem today. The markets are still not extremely cheap which is why we believe that there is a case for defensive investing in equity (balanced advantage / dynamic asset allocation category of funds) and also investing in debt, particularly credit oriented funds at this point of time.
Ritesh Jain, CIO, BNP Paribas Mutual Fund
The domestic fundamentals are still strong and hence the current market volatility does not change our long term outlook on the market.
The markets were looking for a reason to correct after a steep run up, which came in the form of fear of inflation in US and reversal of some momentum strategies sending the US market spiralling down.
I think this will settle down in the next few days.
In the short run, global cues such as global sell-off will be the main drivers of the market.
At this point, advisors should tell their clients to just wait and ride out the volatility. They should take care that the money is in the right funds that have invested in fundamentally strong companies.
Gopal Agrawal, CIO, Tata Mutual Fund
The correction was expected. However, it does not mean that we are heading for a big correction or a big fall. This correction has reduced the excessive valuation.
On domestic front, we are confident that improved macro economic indicators will help markets to grow further. In addition, the easing oil prices will benefit the markets.
In the short run, government expenditure on infrastructure, correction in the oil prices, increase in capex from government and corporates, and stabilisation in the US market will dictate the course of the markets.
In my view, distributors should recommend multi-cap funds to their clients. These funds can provide stability to portfolio through large-cap holdings and higher returns from 20-30% exposure to mid and small cap stocks.
Swati Kulkarni, Equity Fund Manager, UTI Mutual Fund
Currently, global factors and liquidity are driving the volatility. However, it is difficult to predict whether this downfall will continue.
Bond yields have gone up affecting the valuation of equity markets. However, some stocks have become attractive providing an opportunity to value investors. Frankly speaking, nothing has changed from a long-term perspective.
Last year was a year of low volatility. Hence, some correction has cooled off the markets. Earnings growth have picked up in Oct-Dec quarter and we expect that it will continue in the upcoming quarters.
Distributors can look to trim the allocation to midcap and small-cap funds and switch some portion of it to large-cap funds. If clients have adequate exposure to equity funds, distributors can consider adding accrual funds to their portfolio.
