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October was quite a volatile month for the Indian equity markets. However, it ended on a positive note on the last day of the month. Will the market continue its upward trajectory from here? If yes, what will be the major trigger? And which funds to recommend?
Read on to know what the experts believe.
Mahesh Patil, Chief Investment Officer, Aditya Birla Sun Life MF
Overview: Overall, volatility will continue to exist in the near term. Last month, Indian equities were trading at a slight premium to their average historical levels.
In the coming months, the markets will closely track the earnings season, which is the major trigger that can drive the near-term trajectory. Also, given the expected interest rate hike in developed markets, currency volatility is another key trigger.
Further, foreign institutional investors (FII) flows will remain volatile and the market may see volatility increasing further if pressure on the rupee continues.
Sectoral views: Currently, banks, PSUs and pharma are reasonably valued. At the same time, given the stronger growth outlook, discretionary consumption, real estate, speciality chemicals and industrials look attractive.
Recommended fund categories: Due to the volatility, a larger part of the allocation can be in diversified funds (flexi cap, large and midcap, multi cap) and large cap funds, which should form the core of the portfolio. Smaller allocations can be made to midcap, small cap, and sectoral/thematic funds.
Investors seeking lower volatility should consider balanced advantage and asset allocator funds.
Neelotpal Sahai, Head Equities, HSBC MF
Overview: Volatile will remain in the near term with a negative bias. Major triggers for the market include high and persistent inflation concerns (global and domestic), US Fed policy, RBI policy, geopolitical factors and moderating global growth due to geopolitical headwinds and demand impact from sticky inflation.
However, domestic macro has been stable and will support future corporate earnings growth. Also, faster than an anticipated reversal in commodity prices (especially crude oil) would be positive from an inflation and corporate margins perspective.
Overall, market valuations appear on higher side. The broader markets are likely to trade at a discount to large cap or market indices and this will be a reversal from the trends observed over the past two years.
Sectoral views: Domestic cyclicals - financials, followed by auto and real estate appear promising. Also, capex-oriented sectors like cement, industrial and building materials look favourable. Further, we are overweight on technology, chemicals and healthcare in the global growth plays.
Recommended fund categories: Large caps have a slight advantage over mid and small cap.
investors with a higher risk appetite and longer investment horizon can opt for flexi-cap/focused funds. A staggered investment approach is recommended to take advantage of the expected near-term volatility.
And, investors with a lower risk appetite can consider aggressive hybrid or large cap funds.
Sumit Agrawal, Senior Vice President - Equity, IDFC MF
Overview: It would be wise to be cautious at this juncture. There are a few headwinds for the market in the near term like higher interest rates and possible recession in developed markets, which may have repercussions on the global market.
Interest rate hike, softening raw material prices and continued resilience in domestic demand would also be key triggers to watch out for.
While markets have corrected in the near term, given the rising cost of capital globally, it is only natural for them to correct. Continuance of earnings momentum is of key importance for the market to sustain.
Sectoral views: Valuations are still moderate and earnings growth visibility is stronger in sectors like banking and auto, thereby offering a good space to be overweight in the near term.
Recommended fund categories: Large cap funds make sense in current times. Mid/small cap segments need a relatively long investment horizon.
