Sensex crossed 39,000 levels in April on account of robust FII flows and dovish guidance by US Fed. The rate cut by RBI was also positive for the market.
However, the Index of Industrial Production (IIP), which reflects the country’s economic barometer for production activity, contracted to a 20-month low at 0.1% in February 2019 due to a broad based deceleration across all sectors.
IMF too revised India’s growth forecast for FY 2019-20 downwards to 7.3%. However, the 2020-21 forecast for India is at 7.5%.
How did funds react?
International funds, pharma and technological sector funds recorded highest gains aided by a weak rupee. Large cap funds performed better than their mid and small cap counterparts during the month.
We spoke to Atul Bhole, Fund Manager, DSP MF, Pankaj Tibrewal, Sr. Vice President & Fund Manager (Equity), Kotak MF and Vinay Paharia, CIO, Union MF to understand equity market triggers and the near-term outlook for equity markets.
Triggers
The announcement of US sanctions on all countries that continue to import oil from Iran and India’s election results will be the two crucial triggers for markets in May, according to Atul.
Seconding Atul, Pankaj and Vinay too feel that elections will be an important trigger for the market in the short term. Pankaj said that so far, markets are factoring in a stable government and any surprises will lead to short-term volatility in the market post which the focus will be back on economy and fundamentals. According to him, irrespective of who comes to power, in the near term, the new government will have to work hard to improve the health of economy and bring stability to some of the troubled sectors such as aviation and NBFCs.
Markets will also be tracking corporate earnings announcements, said Vinay.
Crude prices above US$80 a barrel could have negative impact on the Indian economy. Hence, markets will be closely monitoring oil prices, feels Pankaj.
Sectoral preference
Atul is bullish private banks, cement and consumer staples and bearish auto and oil and gas.
Vinay is bullish utilities and consumer discretionary and bearish materials and consumer staples.
Pankaj is bullish cement, engineering and capital goods, specialty chemicals, private corporate sector lenders and retail banks and general insurers. He is bearish consumer staples, auto and PSU banks.
What to expect?
Vinay is cautiously optimistic about markets. Valuations and slowing growth numbers have led to his cautious outlook while the dovish stance of both global and domestic central banks provides reason for optimism.
Pankaj, however, thinks the markets are likely to be volatile. The frontline indices (large caps) have run up sharply over the last one year making their valuations expensive. We may see moderate returns from the large cap space. However, the broad market is likely to do well he believes.
Atul expects markets to be range bound with an upward bias. While he does not expect any major correction, the up move is likely to be gradual according to him.
What should you recommend to your clients?
Pankaj feels that investors can look at multi-cap funds as they give fund managers the flexibility to select stocks from across market capitalizations. Investors with a stomach for volatility can also consider investing in the small and mid cap spaces as they are available at an attractive valuation.
According to Atul, investors can look at multi-cap funds or large and mid cap funds in the current markets. He feels that while small caps are available at attractive valuations, the macro and fiscal challenges in the second half of the year may cause some volatility in small caps.
Vinay feels that equity investors can consider multi-cap funds as they give the fund manager flexibility to cherry pick stocks without any market capitalization restrictions. Investors who are undecided about equities can look at balanced advantage category as it toggles between equity and debt based on valuation.
