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While the proposed tax revisions announced in the Union Budget 2024 caused jitters in the markets for a while, it continued its upward trajectory. Both the key indices – BSE SENSEX and NIFTY 50 moved up by over 3% in July.
While there was some bit of weakness in large cap space, mid-caps and small caps did well last month. Will this trend continue in the coming month?
Let’s find out from Christy Mathai, Fund Manager, Equity, Quantum MF, Sumit Agarwal, Fund Manager – Equities, Bandhan MF and Sumit Bhatnagar, Fund Manager, Equity, LIC Mutual Fund.
Christy Mathai, Fund Manager, Equity, Quantum MF
Outlook
- Markets continue to trade at elevated valuations across broader segments, so there is reduced margin of safety in equity
- In the near-term, key focus would be to have resilient quarterly earnings
- After a strong FY24, the top 500 companies need to contend with normalization in input cost benefit and removal of certain cyclical tailwinds
- Progress of monsoons can have a bearing on rural focussed themes and global interest trajectory can impact cost of capital and flows globally
Recommended sectors
- Private banks, technology and saving linked themes within financials such as life insurers look promising
Recommended funds
- Multi asset funds with large caps bias can be looked at the current juncture
Sumit Agrawal, Fund Manager – Equities, Bandhan MF
Outlook
- Post budget, government has taken steps to improve consumption demand, which will affect the market positively
- Due to the capital gains tax implementation, market expectation can be a bit negative but overall, steady returns are expected as budget risk is behind us and monsoon is picking up well
- Major triggers will come from the earnings season as this will decide the major trends in the near term. One has to also watch out for the performance of banking & financial sector closely
- Large cap companies have the most reasonable valuations whereas mid-caps are trading at a premium of 50% to the market average. Small caps are at slight premium of 35-40%
Recommended sectors
- Banking and financials, consumption and IT sector look promising
Recommended funds
- For the long term, mid and small caps can be considered. Large caps and flexicap funds can do well in medium term horizon
Sumit Bhatnagar, Fund Manager, Equity, LIC Mutual Fund
Outlook
- The budget’s focus on continuity of policies, capex spending and infrastructure keeps the market view constructive in the near term
- Government’s support to rural economy and bottom of the pyramid could help the consumption cycle going forward
- US Fed policy movement, monsoon and quarterly earnings could be the major triggers
- Monsoon could have direct impact on consumption
- Large cap stocks look reasonably valued with respect to earnings, policy and liquidity environment. There are few pockets in small caps with stretched valuations. Mid-caps are trading at a premium to their averages
