Choose funds that offer flexibility to move across asset classes and market segments: S Naren

S Naren, Executive Director & CIO, ICICI Prudential AMC has recommended funds that offer flexibility to move across asset classes and market cap.

The fund house believes that the combination of strong domestic fundamentals with high valuations makes a strong case for hybrid and multi asset allocation funds.

Additionally, Naren also prefers large cap companies over mid cap and small cap companies due to its reasonable valuation and the possibility of foreign portfolio investment (FPI) making a comeback.

Here is what Naren said about the global and the domestic Indian market in the annual equity outlook for 2025:

Global market

• The US economy is suffering from high inflation and debt due to monetary and fiscal policies post COVID-19
• Geo-political tensions have caused an increase in volatility in the global markets
• Chinese economy is expected to revive from its deflation issues due to stimulus measures by its government
• While the growth in emerging markets has been stunted after the pandemic, India has been able to grow at a relatively high rate and is expected to continue its growth momentum in the future

Domestic Indian market

• India’s fundamental attributes remain strong due to sustainable government, strong balance sheets, rising capex and high domestic demand
• A younger age demographic, rising income levels, increase in employment and consumption pattern can lead to a continuation of the positive momentum
• Government capex is finally picking up, which can result in multiplier effect on economic growth
• Private capex cycle is also seeing positive signs due to healthy corporate balance sheets, funding acceleration and rise in economic demand
• The equity markets may not revert to the mean but the overvaluations in mid and small cap segments may moderate
• The period of high earnings growth is behind us and one can expect moderate earnings in the near term
• High returns in mid and small cap segments have led to high inflows which also reflect deeper investor confidence and positive market sentiment
• In terms of valuations, large caps are reasonable compared to mid and small cap segments. Nifty 50 is trading at P/E of 23 lower than the historic average of 24.4
• In contrast, BSE Midcap index is trading at P/E of 43, much higher than its historic average of 33.8 while BSE Small cap 250 index is trading at P/E of 43 compared to its historic average of 27.4