The recent market rally seems to be driven by only 10-20 stocks.. This is because investors have flocked to these stocks expecting them to do well amidst the turbulence in the broader market. As a result, expensive stocks have been getting pricier while those at the opposite end of the spectrum saw their valuations being beaten down.
As we enter 2020, a moot point among market participants is whether to invest in the same 10-20 stocks that have led the rally or bet on the other stocks available at attractive valuations.
A report by AXIS MF suggests that the stars of last year may not necessarily be the winners this time. The report says that companies that have rebuilt themselves amidst market forces and have the ability to give strong earnings could be the leaders in 2020.
“For such companies, 2019 was a catalyst to become leaner, focus on core businesses and improve efficiencies in operations and finance. As the economy picks up gradually, such companies are likely to be well positioned to capitalize on this growth and expand to cater to new markets,” says the report.
In the debt space, AAA long corporate bonds currently offer attractive investment opportunities for long term investors looking to lock in rates, notes the report.
R Sivakumar, Head – Fixed Income, Axis MF said, “AAA corporate bonds especially 10 year bonds have seen limited spread compression. Today, we believe, this space offers significant opportunities for long-term investors.”
Further, the report also favours investment in credit risk funds that have seen continuous outflows in 2019.
“Investors who understand credit risk and are ok with some short term volatility should invest in highly diversified largely AA oriented credit funds as we see reasonable spreads between AAA and AA curves making them attractive bets from a risk-reward perspective,” the report says.
