The month of November was an eventful one for equity markets. After record FII outflows in October, foreign investors returned to equity markets in huge numbers in November. Additionally, sharp correction in crude oil prices led to a stronger Rupee, which fell below 70 levels for the first time in three months. Along with these macro indicators, easing liquidity concerns surrounding NBFCs were also a positive on the domestic front. Globally, the outcome of US mid-term election was in line with expectations. Moreover, less severe oil sanctions imposed on Iran and dovish Fed commentary further improved market sentiment. Overall, thanks to mix of healthy news flows, the broader markets ended the month in green.
How did funds react?
With the liquidity related scares related to NBFCs abating, banking sectoral funds recorded the best performance during the month followed by consumption-oriented funds. On market capitalization basis, in sharp contrast to last month, large cap funds recorded highest increase in NAV compared to mid-cap and small cap funds.
We spoke to Ankit Jain, Fund Manager, Mirae Asset MF, Neelotpal Sahai, Head of Equities, HSBC MF and Rajat Jain, CIO, Principal MF to understand equity market triggers in the near term and their market outlook.
Triggers
The coming month has multiple trigger points that market participants will be tracking closely.
According to Neelotpal, the meeting between US President Donald Trump and Chinese President Xi Jinping on the sidelines of the G20 summit will be watched keenly as it will determine the course of trade relations between the two countries in the coming months.
Ankit feels that the outcome of the state elections results will have a major impact on market sentiments in the near term. Rajat and Neelotpal too feel that the state assembly results may stoke short-term volatility in market.
Rajat believes that markets will closely track the OPEC discussions and their decisions on oil production. Currently, there has been abundant supply of crude oil driving down oil prices. Thus, we may see some cut in production feel Rajat and Neelotpal.
The December RBI policy is also an eagerly awaited event for the market according to Ankit. As majority of concerns highlighted by RBI in the previous policy meeting are under control, RBI may maintain a status quo during this monetary policy feels Neelotpal. However, he believes that markets will track the policy statement for cues.
In addition, Rajat believes that markets will track the production numbers and sales of auto and consumption companies to gauge the third quarter earnings.
Markets will also track discussions in the RBI board meeting in December according to Neelotpal.
What to expect?
Rajat believes that markets are likely to be choppy in near term and trade sideways until the 2019 Lok Sabha election. He adds that the recent correction means that quality companies are available at cheaper valuation. Moreover, the recent uptick in currency and correction in oil prices is expected to push down the current account deficit. This improved macro situation coupled with stronger expected corporate earnings means that investors can view any interim volatility as an opportunity for accumulation.
Ankit continues to hold a selectively constructive view of the market. According to him, in the last 6 weeks or so, majority of the concerns surrounding crude, Rupee and liquidity have reduced. In addition, earnings and revenue growth is expected to inch-up. There is also an improvement on demand side, helping pick-up in industrial activity. The combination of these factors leads Ankit to believe that market is well balanced at the current juncture.
Neelotpal believes that the improving fundamentals will help turn the weak market sentiment. He added that corporate earnings are on an upward trajectory. Valuations too had come off after the recent correction. All these contributed to strengthening the fundamental story. In the near term, markets are hoping for a benign OPEC meeting outcome.
Sectoral preference
While, Rajat is positive about chemicals, cement and services, he is bearish on the broad financial sector.
Neelotpal is bullish about private banks, consumer discretionary and construction mainly materials required in road construction. He is bearish about consumer staples as they are trading at very high valuations, energy and utilities sectors, which have high degree of government intervention.
Ankit’s sectoral preferences are towards private sector banks having strong liability franchise, consumer discretionary sector and metals. He also sees value in the midcap segment.
What should you recommend to your clients?
Ankit feels that investors with a three-year plus horizon can spread their investments in different categories of funds through the STP route. Investors can consider 25% allocation to midcaps, 25% to multi caps, 25% to large caps, 15% to thematic funds and 10% to equity oriented hybrid funds.
Rajat believes that with the markets correcting sharply, compared to last year, midcaps are now available at valuations that are more reasonable. According to him, there are many quality mid cap companies available at cheaper price currently. Thus, a long-term investor can consider a mix of diversified and mid-cap funds for investment.
In the near term, Neelotpal feels that investors can enter equity markets through the equity oriented hybrid funds route.
