The equity market continued its upward journey in September with the Sensex crossing 60,000 mark for the first time. During the month, every sector recorded positive returns. Realty, media and energy were among the top gainers with over 10% rise in their sectoral indices.
Will this rally continue in October or will there be a correction? What are the major triggers? Which sectors are likely to outperform and which fund to recommend?
Here's what experts have to say.
What to expect
Ashutosh Bhargava, Fund Manager and Head Equity Research, Nippon India MF
- After a broad-based strong rally, market may consolidate in near term
- Domestic growth is strong but at the same time some global risks have emerged lately which are causing volatility in the market
- Valuations are not cheap in most pockets. However, equities are still very attractive versus bonds and that has been the key support for higher valuations. As long as rates are low, valuations risk would not be material
Triggers
- India is likely to see a strong growth in the second half of the current FY as economy opens properly for the first time since the onset of Covid
- On the risk side, further rise in oil prices and sharper than expected rise in US bond yields are two key risks to watch out for
Chintan Haria, Head- Product Development & Strategy, ICICI Prudential AMC
- Long-term view on equity remains positive; however, the medium-term view has turned cautious due to valuations moving higher
- Market volatility may continue given uncertainty related to global central bank policies
- With government’s focus mainly on growth, economic environment is becoming more conducive for a business cycle recovery
- Investors should adhere to asset allocation and stay away from leverage even if there is a temptation of significant gains to be made in the short term
Triggers
- Monitor US 10-year treasury yield and US Fed roadmap for withdrawal of stimulus
Sumit Agrawal, Senior Vice President, IDFC AMC
- While so far earning growth has been strong, the rate of positive revisions is already coming down, except for a few sectors like tech and metals
- One needs to be mindful of the space wherein earnings traction is decelerating and the price-performance is already quite strong
- One should not focus on a single period of growth but the growth for the next 3-5 years. For instance, a company that is growing at a 3-year CAGR of 25-30% will look expensive if you look at just the next 1-year P/E
Triggers
- Generally, we see ‘risk’ emerging from the most unanticipated areas. Perhaps, a sell-off trigger due to liquidity drying up, huge primary market supply, rising global rates or maybe some upheaval in the world of crypto
- However, on the positive side, the macros for India are likely to stay better and we will keep hearing comforting narratives on things like thrust on domestic manufacturing
Commentary on sectors
Ashutosh Bhargava
- Bullish on domestic cyclicals like financials, utilities and materials and also global-oriented sectors like commodities and tech
Chintan Haria
- Positive on sectors like oil & gas, construction, banks, auto, pharma and PSU companies, where the valuation, earnings or dividend yield remain attractive
Sumit Agrawal
- Bullish on BFSI and autos. Both these sectors are out of favour currently and out of the radar of many investors. BFSI, despite being the largest sector in the benchmark is one of the most underweight positions in an investor’s portfolio
What to recommend
Ashutosh Bhargava
- Multicap fund in the diversified category and asset allocation offerings like BAF and MAF
Chintan Haria
- For lump-sum investments, we prefer categories like balanced advantage and multi asset since they are defensive at times like now when market is at an all-time high
Sumit Agrawal
- At present, risk-reward ratio is more favourable towards large cap funds
- For conservative investors, a category like balanced advantage fund is a good option
