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  • MF News Equity market outlook - what to expect in February

    Equity market outlook - what to expect in February

    A snapshot of key events in the month gone by and what to expect.
    Shreeta Rege Feb 1, 2019

    Mixed news flow influenced markets last month. Weak global growth data, mixed quarterly earnings numbers, selling pressures in power and auto sectors dragged down the markets. Essel and DHFL group stocks also suffered major correction amid debt concerns. However, softer inflation numbers, IMF forecast of robust economic growth in India (7.5% growth in 2019 and 7.7% in 2020), strong corporate earnings of industry heavyweights limited the losses. Overall, markets ended the month in red.

    How did funds react?   

    Choppy markets resulted in most of the categories delivering negative returns. Technology and pharma sector funds were the outliers reporting positive one-month returns.

    We spoke to Jinesh Gopani Head – Equity, Axis MF, Lalit Nambiar, Executive Vice President and Fund Manager (Equity), UTI MF and Soumendra Nath Lahiri, CIO, L&T MF to understand equity market triggers and near term outlook for equity markets.

    Triggers

    According to Lalit, markets will look to the budget to understand current government’s policy priorities if they were to come to power. As this is the last budget before elections, it is likely that markets will look at the budget announcements as expression of intent of the government. Market participants are gearing up for some populist announcements during the budget, he said.

    Jinesh feels that there is likely to be some sectoral movement as markets will study the impact of the budget policies and participants will analyse the government’s balance sheet. Soumendra does not expect the budget to be a major event as the current government has a track-record of announcing major policy announcements during the course of the year.

    According to Jinesh and Soumendra, corporate earnings will influence markets in February while Lalit feels that earnings may matter less in the near term.

    The result season is expected to last till mid-February. So far, the earnings have been in line with expectations; continued good earning numbers will provide support to the market expects Soumendra.  On the other hand, Lalit feels that despite earnings being in line with expectations on an aggregate level, they are concentrated in certain pockets, which indicates a slower recovery in corporate India earnings.

    Along with these domestic triggers, markets will continue to track other ongoing events such as global news and movement in oil, ETF flows for cues, shared Jinesh. 

    What to expect?

    Soumendra feels that markets will continue to remain volatile in the near term with the current uncertainty prevailing until elections. Benign oil prices and inflation will have a positive impact on the market. However, this is likely to translate into meaningful market movement only after the new government is formed.  

    Jinesh expects markets to be volatile in a tight range in the near term unless the budget throws in a major surprise.

    Lalit feels that businesses will be in wait and watch mode till the upcoming elections. Consequently, markets will reflect a similar sentiment. Overall, markets will be driven by unexpected news flows. He expressed some concern in the near term on the shortage of currency in the rural markets and the possibility of people moving a part of their financial allocation into physical assets.

    Sectoral preference

    On an ongoing basis, Jinesh is bullish about the banking and financial sector, consumption theme and retail led NBFCs. He is bearish on telecom, real estate and oil and gas sectors.

    Lalit is more positive on companies that can benefit from a recovery in the capital investment cycle and companies linked to growth in rural India from a medium term to long-term perspective. He is cautious about companies having extremely high valuations, which assume growth rates will continue for many years to come. 

    Soumendra is bullish on corporate banks, capital goods and pharmaceuticals. He is also selectively positive about some technology stocks. He is bearish on power, utility, and metals.

    What should you recommend to your clients?

    All the three fund managers stressed on the importance of investors sticking to their asset allocation and not changing the portfolio basis short-term market movements.

    Currently, investors can look at staggering their investments in large cap oriented funds and multicap funds depending on their investment horizon, feels Jinesh.

    According to Soumendra, investors can look at diversified multi cap funds. Moreover, the mid and small cap space may see some improvement given the sharp correction in these stocks.

    Lalit feels that investors should decide their equity and debt allocation based on their risk appetite. Their active equity portfolio should predominantly be invested in multi cap funds followed by a small allocation to mid and small cap space to generate alpha but investment horizon should be extremely long. Patience is the most important thing.   

    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

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