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Equity markets are now seeing a downward trend after a prolonged market rally. What is causing this, and do you think a major correction is about to come?
- US yields have increased to more than 4.5%, returning to recent pre-rate cut levels. On the other hand, emerging market currencies have been weak on the back of a strong dollar and US economy. This has resulted in money moving from emerging markets, including India, to safe havens like the US.
- As things looked to stabilize in terms of geopolitics in 2024, especially on the war front, the Trump 2.0 regime has opened a new set of uncertainties with impending tariffs, withdrawal from the OECD Global Tax Treaty, the Paris Climate Agreement and WHO. This has clouded the global growth outlook, especially for fast-growing economies like India and resulted in significant currency volatility over the past couple of months.
- Indian equity markets were on a consistent earnings upgrade cycle post-Covid. However, over the past 6–9 months, we have seen earnings expectations being revised downwards in line with broader GDP growth. The downgrades have been more broad-based and across sectors.
While the above concerns have appeared, certain positive factors continue to provide comfort. India’s macro backdrop continues to remain strong, with the government sticking to fiscal consolidation, GDP growth remaining healthy at around 6.5% (although slower than before), inflation continuing to slowly trend down and good crops on the back of strong monsoons, etc. DII flows continue to remain extremely strong with record SIPs from retail investors. While FII selling has been relentless over the past 3–4 months, we think this will turn around soon. To conclude, we think markets are well-placed from a medium to long-term perspective; however, a short-term correction or time-correction in the short run, post 3–4 years of strong equity markets is possible.
Where does value lie – large cap, mid cap, or small cap? Which are the sectors that look attractive from a valuation point of view?
The definition of value in equity markets is quite subjective and changes from person to person. According to us, absolute P/E and P/B levels are not the determining factors for value. We see value as when the stock is trading at prices much lower than the ‘intrinsic value’ determined by us.
Looking from this lens, we believe that currently, large caps and select small-cap stocks provide us with this valuation comfort. From a sector perspective, currently financial services valuation seems to appear reasonably favorable. Additionally, certain sections of consumer discretionary (considering the long-term potential) and tech may also look favorable.
The majority of equity funds of HSBC Mutual Fund have been doing well. What are the three things that have contributed to this?
We have consistently adhered to the investment process laid down in our communications, focusing on strong bottom-up research capabilities.
- We have a strong research analyst team who are experts in their respective sectors, providing in-depth and insightful research on the companies covered by them.
- Our broad themes on domestic manufacturing, real estate, consumption and financialization have worked well and along with good stock selection within these opportunities.
Both your diversified funds, i.e., the Flexi Cap Fund and Multi Cap Fund, have a large-cap bias. What’s the rationale for this?
For both the funds, large caps are the most dominant market capitalisation bucket. However, compared to their respective benchmark index, both funds are underweight in large caps.
How should MFDs deal with lump sum money? Which categories of funds should they consider for investors with a high-risk appetite and a time horizon of 3–5 years?
According to us, for investors with a high-risk appetite and a medium to long-term time frame, small cap and multi cap funds can be best placed. Certain thematic/sectoral funds may also be considered.
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Note on Risk-o-meters: Riskometer is as on 31 December 2024, Any change in risk-o-meter shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to unitholders of that particular scheme
Note - Views are personal and based on information available in public domain at this moment and subject to change. Please consult your financial advisor for any investment decisions. Past performance may or may not be sustained in future and is not a guarantee of any future returns.
Source: Bloomberg, MOSL & HSBC MF estimates as on Dec 2024 end or as latest available
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