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What is your medium-term market outlook on equity markets? Could you take us through the key factors that could shape the markets in the near future?
Post the rationalisation of earnings expectations in the last one year, we observe that in the ongoing result season, earnings have been fairly resilient indicating that negative earnings surprises have largely bottomed out. Also, with the consolidation of the equity markets in the last 18 months, valuations have relatively become fairly reasonable. Hence, both valuations and healthy earnings growth potential are well placed at this point in time, which is conducive for the equity markets.
We view that certain structural factors over the medium term defined by lower raw material inflation, supply chain normalisation, low corporate leverage and strong bank balance sheets can drive healthy credit growth and uptick in capex cycle.
Many MFDs are not comfortable with the current market valuation and hence, not recommending lump sum in equity funds. What is your view on this? Should they continue to do STP or should they consider big lump sum?
With the consolidation in the equity markets, valuations have become fairly reasonable with price/ earnings to growth (PEG) ratio at 1.1-1.2x one year forward. Also, negative surprises on earnings growth has primarily bottomed out. This along with the now lower valuations bodes well for the market.
Hence, as equity investments are of a longer-term horizon, currently an investor can look at lump sum rather than only STP, with the quantum to be decided as per their risk appetite.
Over the last two years, equity funds have not performed well across categories. How can MFDs explain this to their clients?
Equity markets are fairly volatile and cyclical in shorter durations, however, over a longer time horizon, it remains the best investment domain for an individual, as the benefit of compounding returns gets captured. The reasons for volatility differ across timeframes; however, the equity markets have always demonstrated resilience and recovered handsomely.
We appeal to investor not to be dissuaded by shorter term volatility but in fact, utilise the same to continue with their equity investment plans.
India is on its way to being a 5-trillion-dollar economy. Which are the three sectors likely to perform well during this journey?
We view that in India's journey to be a 5-trillion-dollar economy, discretionary consumption and manufacturing are to play a key role. Hence, we are positive on financials, industrials and consumer discretionary.
Which fund categories should MFDs recommend to their clients and why?
We view that diversified schemes across different market cap categories depending on investors' appetite can be recommended.
