The equity indices took a beating in the month of September owing to the continued weakness in currency and oil prices touching the 2014 highs. Adding to the woes, the IL&FS default triggered a sell-off in the financial space. On a brighter note, encouraging domestic inflation and industrial production data helped reign in some losses during the first fortnight of the month. However, the overall market mood was somber.
How did funds react?
The last month saw the so-called safe-havens FMCG and private banks faced a more pronounced correction. However, as these sectors were trading at high valuations the correction is not very surprising according to experts. This sectoral correction resulted in banking and consumer funds recording substantial negative performance. IT funds meanwhile were amongst the top performers. On market capitalization basis, mid cap and small cap funds saw a sharper fall in NAV compared to large cap funds.
We spoke to Chandraprakash Padiyar, Senior Fund Manager, Tata MF and Gautam Sinha Roy, Sr. VP - Fund Manager, Motilal Oswal MF to understand equity market triggers in the near term and their market outlook.
What to expect?
Gautam believes that NBFC liquidity tightening and global macros such as oil prices and Rs/$ will be key market influencers in the month of October. Seconding Gautam’s view, Chandraprakash feels that any fall in oil prices will be positive for the markets in the near term. In addition, he mentions that market participants will also track Q2FY19 corporate earning numbers during the month. Currently he is bullish on select corporate banks, auto/ancillary and consumer discretionary stocks.
NBFC liquidity tightening refers to the wariness amongst investors to lend to NBFC companies post the IL&FS debacle. Market participants are keenly awaiting a resolution to IL&FS debt troubles through measures like capital infusion and deleveraging of assets.
Given that all segments of the market have corrected, fund managers expect strong growth once external factors stabilise. “I am particularly optimistic on the small cap segment – though need to be stock specific in that segment,” said Chandraprakash.
What should you recommend to your clients?
Gautam feels that in the current volatile markets investors should look at dynamic asset allocation funds for fresh investments. "As these funds essentially rebalance the equity and debt allocation based on market valuation it makes more sense to invest lumpsum in these funds," he added.
Chandraprakash feels that equity investors should look at diversified funds, balanced funds and small cap funds as all segments of the market have corrected recently. He expects strong growth across the breadth of the market once external factors stabilise. He is particularly bullish about small-cap category. However, he cautions that stock selection is critical in small cap space.
