The market was range-bound in December with Omicron fear being the dominant factor. Given the uncertainties around the new variant, we witnessed heightened volatility in December.
Nifty touched a four-month low of 16,600 in mid-December, while Sensex plummeted to 55,000. However, they have posted a decent recovery since then.
With a new year starting, will the markets continue to be range-bound or move in a definite direction in January? What are the major triggers? Which sectors are likely to outperform and which funds to recommend?
Here's what fund managers have to say.
What to expect
Chandraprakash Padiyar, Senior Fund Manager, Tata MF
- The market may remain range-bound for the next six months or so due to normalisation in demand specially from the US
- The last 12 months were marked by positive surprises on the earnings front. This trend may continue only for a few sectors and unlikely to be the same for the overall markets given the commodity price pressure on margins
- We are likely to see a pickup in the manufacturing sector, thanks to the PLI scheme, surge in capex and focus on exports. The real impact of these developments will be seen in FY24 and beyond
- If everything goes as per expectation, we can expect the economy to grow at over 7% in coming years. This will lead to credit growth, job creation and salary growth, which will boost corporate earnings and drive the markets up
Cheenu Gupta - Fund Manager — Equities, L&T MF
- Markets usually consolidate after a sharp run up. This has been happening now
- Once this phase is over, market is likely to resume the upward journey on the back of healthy earnings growth
- Valuations are surely not cheap. Largecap is trading at 20 times the earnings. Even mid and smallcaps have become pricey after the recent upsurge
- However, the earnings growth provides some comfort. The Nifty earnings growth, which was less than 2% in the last five years, is expected to be around 20% in the next three years
Shridatta Bhandwaldar, Head – Equities, Canara Robeco MF
- In the near term, there's a need to remain cautious on account of four factors: increasing covid cases; growth moderation globally; slowing earnings upgrade and high valuations
- The medium-term outlook is positive given the fact that earnings are still resilient for FY2022-2023 and exports, consumption, investment and government capex are likely to drive economic and earnings cycle over the next 3 years
- Despite the recent corrections, valuations are still at historically high levels
- However, the corrections have made stocks attractive from 2-3 years’ investment perspective
- There are more opportunities in largecap space in the near term as compared to the broader market
Triggers
Chandraprakash Padiyar
- The economy seems to be on the right track and that's the biggest trigger. We are likely to see pick up in credit and earnings growth, job creation and an overall uptick in the economy in years to come.
- Geo-politics can be a negative trigger. Economies across the world are becoming conservative, which can lead to closing of borders for trade. If the trend continues, economies can suffer
- Lockdowns may have a short term impact. Interest rate changes won't impact much as balance sheets are in a healthy state.
Cheenu Gupta
- Once the Omicron fear fades, sectors like hospitality, retail and travel are likely to do well
- The upcoming Budget is expected to focus on infrastructure. With the private capex cycle picking up, this could add to the growth momentum
- At the same time, one needs to be watchful of the underlying inflation and the corresponding interest rate hikes
Shridatta Bhandwaldar
- On the upside, there can be two triggers — absence of covid spread in next 3 months and earnings upgrades
- On the downside, there will be two possible triggers — meaningful economic disruption due to covid and moderation of growth globally as fiscal impact recedes
Commentary on sectors
Chandraprakash Padiyar
- Bullish on old economy sectors like banks, financials, auto and telecom, which are likely to be the biggest contributors to earnings growth. Interestingly, these are the sectors which are cheapest at present
Cheenu Gupta
- Discretionary consumption space is likely to benefit from the increasing wealth due to higher salaries and job addition in the formal sectors
- Real estate, retail, hospitality, services and auto (once the chip shortage is over) can also benefit from the pent up demand and the rise in disposable income
Shridatta Bhandwaldar
- Earnings upgrade is expected in consumer discretionary, financials, industrials, financials, cement, housing etc. in the next 6-8 quarters. These sectors seem attractive as of now
What to recommend
Chandraprakash Padiyar
- Funds which have the flexibility to move between various market caps like flexicap, large and midcap, multicap and even focused funds
Cheenu Gupta
- Multi-cap and large & midcap funds as they can pick winners from across market caps
Shridatta Bhandwaldar
- Diversified funds like large & mid cap, flexicap, value and focus funds for investors with horizon of at least 3 years
