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George Heber Joseph, CEO & CIO, ITI MF believes that the macro-outlook is likely to remain challenging over the next few months. While markets have seen some correction in the last four months, valuations are yet to enter an attractive territory. Besides, there is a wide deviation in valuations across sectors.
Further, a combination of low returns from the market (if the market was to stay flat or decline) and higher fixed deposit rates over the next few months may shake the faith of retail investors in equities.
The fund house CEO considers the current investing backdrop to be filled with uncertainty. Just as the global economy is looking to emerge from the effects of the pandemic, the Ukraine-Russia war has put new pressures on a global system that was otherwise looking to normalize interest rates and tackle the effects of the high inflation.
The present times highlight the importance of building resilient portfolios through diversification and focus on quality i.e. stocks of companies with strong balance sheets and healthy free cash flows.
Sectoral preference
Sectors that can do well in the existing macro construct can be divided into two buckets - aggressive sectors and defensive sectors.
In the aggressive space, banks and financials, auto and auto ancillaries, capital goods and engineering along with select commodities can do well whereas in the defensive space, in addition to pharmaceuticals and healthcare, select consumer durable stocks can also do reasonably well. Stocks of these sectors are in line with the SQL investment philosophy of the fund house as they have a higher safety margin, quality business and low leverage.
Also, given the possibility of the rupee depreciating against the US dollar, ‘INR depreciation beneficiaries’ like IT and pharma look attractively positioned in the near to medium term. Most of these stocks have corrected recently and thus provide some upside. However, it is advisable to stay with large cap oriented companies here.
Lastly, as companies seek to offset higher wages, businesses selling labour-saving equipment and technology could benefit. Software solutions and some industrial equipment are the two potential beneficiaries.
Investment advice
Investment in equity funds, particularly mid and small cap categories, should be done systematically over the next six months through daily/weekly STPs (Systematic Transfer Plans) or SIPs (Systematic Investment Plans).
Investors wanting to make lump sum investments can consider ITI Balanced Advantage Fund. More conservative investors can opt for ITI Conservative Hybrid Fund for potentially better returns over traditional savings products at lower volatility.
