The year has started on a volatile note with equity markets rising in the first half, followed by a sharp correction from mid-month onwards.
While the corporate earnings were on the expected lines, the gains have been subsided due to weak global sentiments and inflation concerns.
So, what can we expect from the equity markets in February? Let’s see what experts have to add:
What to expect
Mahesh Ramasubramanian, Investment Strategist, DSP Investment Managers
While corporate earnings are improving, markets may see tightening of liquidity- Corporate earnings growth is expected to be 16-18% over the next couple of years driven by the normalization of operating conditions in several sectors
- Rising crude oil, elections in five states and Fed policy action and geopolitics are the key aspects to keep a close eye on
Neelotpal Sahai, Head - Equities, HSBC MF
Markets will be unpredictable in the near term due to high valuations, weak global cues and tightening of liquidity- While the third wave has impacted the recovery momentum, it does not derail it. However, events like geopolitical crisis in Ukraine and rising crude prices may have a negative impact
- Valuations remain elevated at an aggregate level and across the market capitalization. The risk of earnings downgrades is higher for small cap basket as opposed to midcaps and large caps
Ravi Gopalakrishnan, CIO - Equity, Sundaram MF
Given the significant rise in markets globally and in India, markets are likely to see some volatility in the near term- The equity markets are likely to remain in a consolidation phase during the initial part of this year before the earnings growth numbers start coming in and triggering the next leg of the upcycle
- The mid and small cap space has seen a significant increase in valuations on a relative basis and is trading at a premium compared to large caps; however, the space still offers good opportunity selectively
- Given the attractiveness of India and economic tailwinds over the next 3-5 years, valuations in general are likely to remain high
Yogesh Patil, Head - Equity, LIC MF
The Indian economy is at an inflection point that marks the start of a new growth cycle. We continue to remain bullish in the medium to long term on domestic consumption and export-driven business- Pick up in domestic demand, increase in capital expenditure and continuous improvement in the macroeconomic environment post the Covid disruption are the key market triggers from hereon
- Valuations need to be seen relative to other asset classes and we feel that the current market valuations are not expensive in this context
Commentary on sectors
Mahesh Ramasubramanian, Investment Strategist, DSP Investment Managers
- We currently recommend banking, consumer discretionary, agricultural inputs and infrastructure sectors
Neelotpal Sahai, Head - Equities, HSBC MF
- Driven by the theme of domestic cyclical recovery, we are positive on rate sensitives (financials and real estate), industrials, cement and b2b manufacturers
- With global growth expected to remain higher than the historical trend line for 2022-23, we also see technology services, chemicals and pharma continuing to benefit
Ravi Gopalakrishnan, CIO - Equity, Sundaram MF
- We are bullish on manufacturing, industrials, consumer discretionary (including auto) and technology sectors
Yogesh Patil, Head - Equity, LIC MF
- We remain positive on domestic consumption, private banks, IT, chemical and export-oriented companies
What to recommend
Mahesh Ramasubramanian, Investment Strategist, DSP Investment Managers
- Flexicap funds are recommended
- Investors with a higher risk appetite and more than 5 years of investment horizon can take benefit from the recent volatility through incremental exposure in mid and small cap funds
Neelotpal Sahai, Head - Equities, HSBC MF
- Investors with a moderate 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 or focused funds. It may be better to stagger investments to take advantage of the expected volatility in the near term
Ravi Gopalakrishnan, CIO - Equity, Sundaram MF
- Investors should invest in a diversified portfolio of good quality stocks in the large, mid and small cap space
