Listen to this article
As markets may remain volatile in the near term, Cafemutual reached out to experts to understand how to navigate this volatility and which sectors are likely to set a positive tone for 2023.
While sharing their outlook, the experts shared sectoral views and fund recommendations.
Chandraprakash Padiyar, Senior Fund Manager, Tata MF
Outlook - Indian markets have been touching new highs consistently and valuations are on the higher side. With earnings outlook a bit on the weaker side in the short term (6-12 months), markets may remain range bound with a negative bias.
Any sharp change in the US Fed interest rate trajectory can provide triggers for equity markets globally.
While valuations are reasonable across market capitalisation in pockets, markets, in general, are sitting on high valuations. One needs to be very selective in picking businesses.
Promising sectors - Risk reward is currently the most favourable for financials especially banks. Manufacturing as a theme is the next best to play over the next few years.
Recommended funds/strategies - We prefer small caps followed by large caps and then midcaps. Pure mid cap segment has above average valuations currently and hence the least preferred for the next 12-18 months.
Chintan Haria, Head- Product Development & Strategy, ICICI Prudential MF
Outlook - India remains one of the most expensive markets globally. At the same time, it is one of the structurally sound marketplaces offering a secular growth story. This makes India unique among emerging and developed economies.
However, there are a few headwinds in the near term that may affect the Indian economy - appreciating USD against INR due to rate hikes by US Fed, India’s rising external sector risk and inexpensive valuations of global markets. Also, rather than inflation, growth may become a problem in the coming year.
While we continue to remain constructive on equities over the long term, expect volatility in the near term.
Promising sectors - Given the positive growth prospects of the Indian economy, banking, infrastructure & manufacturing, auto, transportation & logistics may do well. From a defensive viewpoint, you may look at pharma.
Recommended funds/strategies - Look at schemes that have the flexibility to manoeuvre across different asset classes, market cap & themes to mitigate expected near-term volatility.
Within market capitalisation, we prefer large cap and flexi cap over mid and small caps.
Trideep Bhattacharya, CIO-Equities, Edelweiss MF
Outlook - We are likely to face recessionary conditions before returns materialize in the second half of 2023. Also, as equity markets grapple with central banks’ focus on calibrating interest rates, the first 3-6 months are likely to be volatile. But we continue to remain constructive on equity markets from a 3-year perspective.
Also, after the 15%+ rally in the last 6 months, valuations appear fair on average. However, there are pockets/sectors where valuations are still attractive from an investment perspective.
Federal Reserve commentary on rate increases, data points on the covid situation in China and the Russia-Ukraine war situation will be the key triggers from hereon.
Promising sectors - We are positive on five themes which fall across multiple sectors - rebound in credit growth, private sector investment demand, household capex demand, global market-share gainers and idiosyncratic country-specific themes (beneficiaries of Govt. growth schemes and indigenisation of defence).
Recommended funds/strategies - We recommend flexi cap funds for risk-averse investors with an investment time horizon of 1-3 years. Investors with a 5-10 years horizon and a higher risk appetite, can opt for mid cap and focused equity funds that capitalise on bottom-up stock-picking.
