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What is your medium-term market outlook on equity funds? Could you take us through the key factors that could shape the markets in the near future?
Generally, over medium to long term, corporate profits should grow close to nominal GDP growth which should be about 11-12% for India. Stock market returns should be in line with this trend. In the near future, we are facing a global economy, which has slowed down due to the monetary tightening. Domestic economy has been resilient and with energy prices falling outlook on currency is positive. The pace of monetary tightening globally especially in the US is definitely going to be a big factor going forward. The direction of dollar against emerging market currencies is going to be important too. The impact of a slowing global economy on domestic growth needs to be monitored.
Many MFDs are not comfortable with the current market valuation and hence, not recommending lumpsum in equity funds. What is your view on this? Should they continue to do SIP/STP or should they consider big lumpsum?
We feel this is a period where it is difficult to justify a big deviation from the base allocation to equities. The base allocation to equities clearly depends on the risk profile and objectives of each specific investor. So, whether through SIP/STP or lumpsum. it is advisable to be in the range of base allocation.
Over the last two years, equity funds have not performed well across categories. How can MFDs explain this to their clients?
Indian equities have proven over last 30 years that it offers an outstanding return to risk profile. Equities tend to have periods where returns are low followed by periods where returns are robust - timing these periods are very difficult. Hence, it is better for investors to be patient and look at equities from a long-term perspective.
India is on its way to being a 5-trillion-dollar economy; which three sectors are likely to perform well during this journey?
Generally, sectors which grow faster than nominal GDP will outperform in the longer term so financials, consumer discretionary and healthcare are likely to outperform in the long term
Which fund categories should MFDs recommend their clients and why?
We believe that currently given the macroeconomic and market scenario funds with healthy mix of large, mid and smallcap are appropriate so flexi/multi/large-mid/focused are the categories to consider.
