Oct 2021 displayed two distinctive trends - continued surge in the first half and losing momentum in the second half. Which of the two trends will be setting the tone for the coming month?
Let’s hear straight from the horse’s mouth as industry experts share their near term outlook on the market.
What to expect
Harish Krishnan, EVP & Equity Fund Manager, Kotak Mahindra MF
- While we are enthused by the strong economic growth prospects as well as improving fundamentals of various businesses, markets have risen a bit too fast too soon
- Corporate earnings, taper announcement by US Fed Reserve, run up to various state elections as well as rising commodity prices all can potentially impact markets in the medium term
- Markets are richly valued across most sectors & market caps and as economy normalized post covid, we expect the profit pool of Indian companies to improve
Neelotpal Sahai, Head - Equities, HSBC MF
- Markets in the near term could remain volatile given the backdrop of high valuations. Earnings growth should eventually catch up with valuations and this will mean that the equity market returns will be mirroring earnings growth over the medium to long term
- Earnings momentum & corporate commentary, inflation trends (both global & domestic), global commodity prices (especially crude oil prices), China real estate crisis, adverse impact of sub-optimal monsoon, geo-political risks are the key triggers
- Traditional valuation metrics (P/E, P/B) show markets are above historical average across market caps
- Small cap earnings growth assumptions are significantly higher followed by midcap and Nifty on a blended 12-month forward basis
Alok Agarwal, Senior Fund Manager - Equity, PGIM India MF
- Market is expected to be range-bound in the near term owing to (1) Around the corner Fed tapering (2) Rising inflationary and corporate margin pressures are here to stay along with supply-side challenges (3) Excessive valuations in select pockets and (4) Demand and earnings optimism well factored-in for the medium-term
- India is entering the festive season and initial signs reflect good demand
- Although equity valuations are expensive compared to historical averages yet they are cheaper than bond valuations
Sorbh Gupta, Fund Manager - Equity, Quantum MF
- Resurgence of Covid-19, the US Fed’s tapering & subsequent interest rate hikes and higher than expected inflation are some of the macro variables which can increase market volatility in the next few months
- Domestic institutions are again seeing positive flows in the last few months from retail investors. In the medium & long term, India’s nominal GDP growth will look better than the western world, thereby making it a sought-after destination for yield & growth-seeking long term global investors
- Markets are heterogeneous. Not everything is cheap or expensive at the same time (barring times of severe global dislocation like Oct 08 or Mar 20). After the recent rally, the benchmark indices appear expensive
Commentary on sectors
Harish Krishnan, EVP & Equity Fund Manager, Kotak Mahindra MF
- Positive on engineering goods, home building, consumer discretionary like travel, retailing and companies focused on global value chains like engineering goods, IT, digital etc.
Neelotpal Sahai, Head - Equities, HSBC MF
- Over the next 2-3 years, we are positive on private banks, healthcare, real estate, cement & chemicals and industrial sectors
Alok Agarwal, Senior Fund Manager - Equity, PGIM India MF
- A closer look at earnings estimates shows that incremental growth in net profits is likely to come from domestic consumption sectors linked to recovery in the economy, banks and global commodity sectors
- Additionally, we are also overweight on digitization, industrials and healthcare
Sorbh Gupta, Fund Manager - Equity, Quantum MF
- We believe some of the large banks, specialized NBFCs, automobiles, PSUs & Tech (global cyclical) and materials are well placed to benefit from cyclical economic recovery
What to recommend
Harish Krishnan, EVP & Equity Fund Manager, Kotak Mahindra MF
- With valuation rising across the board, larger companies have a slightly better risk-adjusted profile
Neelotpal Sahai, Head - Equities, HSBC MF
- Investors with a lower risk appetite can consider aggressive hybrid or large cap funds
- Investors with a higher risk appetite along with a longer investment horizon can consider flexi-cap/mid or small cap funds
Alok Agarwal, Senior Fund Manager - Equity, PGIM India MF
- From a 6-12 month perspective, it makes sense to have a more balanced allocation, rather being too aggressive or too conservative
Sorbh Gupta, Fund Manager - Equity, Quantum MF
- Investors should create a diversified equity portfolio through a mix of 5 to 6 schemes of varying styles and market capitalizations. Given the near-term volatility, a time horizon of 3 to 5 years is recommended for any equity investment
- A value fund as the anchor fund (20% to 25% of total exposure) layered with funds of different market capitalizations is recommended
- Thematic-ESG funds could also be explored
