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The market outlook is likely to remain challenging and volatility is expected to continue over the next few months. While markets saw a good bounce back till August 2022, they also witnessed consolidation in September 2022. Also, valuations are slightly above historical averages as nifty earnings have downgraded due to high inflation and energy prices
Further, the macro situation is highly dynamic and volatility across asset classes is increasing. In such a scenario, MFDs should look at running well-diversified portfolios for their clients.
Here are few points that explain our equity outlook:
- Improving global macro situation and recovery of Indian economy give corporates huge scope for operating leverage. This will drive financial growth in coming quarters
- Domestic cyclicals such as auto and auto ancillaries, consumer durables, real estate and building materials, capital goods and engineering and infrastructure related sectors are likely to perform well
- Pharma and healthcare sector should also do better as they come out of a low growth phase
- The stand on information technology and financial space remains neutral
Debt markets
Central banks have hiked interest rates globally. The US Federal Reserve hiked policy rates by 75 basis points (bps) in September 2022. Also, ECB (European Central Bank) raised its policy rates by 75 bps and RBI expectedly increased the benchmark policy repo rate by 50 bps to 5.90%.
- Markets need to consider the impact of the US Fed’s latest median forecast of 4.4%, 4.6% and 3.9% for the end of 2022, 2023 and 2024, respectively
- The ECB has indicated more than two and probably less than five rate hikes
- India’s repo rate is expected to peak between 6.25% - 6.50%. The central bank is expected to act to curtail volatility caused due to spill overs from aggressive monetary policy actions and even more aggressive communication from central banks in Advanced Economies (AEs)
- From an accrual perspective, the short end of the curve appears attractive. Also, sovereign bonds over high grade credit and taking tactical exposure to liquid sovereign bonds make more sense
Fund recommendations
- Investors wanting to invest in lump sum could consider ITI Balanced Advantage Fund
- More conservative investors may opt for ITI Conservative Hybrid Fund for its potential to give better returns than traditional savings products with much lower volatility than equity or aggressive hybrid funds
- Investment in equity funds, particularly mid and small cap categories, should be done systematically over the next three to four months in the form of daily/weekly STPs or SIPs.
ITI Balanced Advantage Fund
ITI Conservative Hybrid Fund
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
