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The Indian equity market experienced significant volatility due to a confluence of global and domestic factors in April.
The month saw retaliatory measures by China on proposed US tariff rates followed by a 90-day pause on the proposed tariffs, adding to the global uncertainty.
On the domestic front, RBI reduced repo rate by 25 bps to infuse more liquidity into the system.
So, what does May hold in store for the equity market? Here are what the expert fund managers – Amay Sathe, Fund Manager, Tata MF, Bhalachandra Shinde, Associate Fund Manager, Motilal Oswal MF, Karthik Kumar, Fund Manager, Axis MF, Satish Ramanathan, CIO - Equity, JM Financial MF and Sorbh Gupta, Senior Fund Manager- Equity, Bajaj Finserv MF AMCs have to say:
What happened in April?
Global
- Uncertainty continues to be the theme with regards to global trade
- The shifting stance of the US on international trade, particularly tariffs, created global market volatility. This led to significant outflows from Indian equities
- Tariff announcement on multiple countries, including India, led to a sharp sell-off
- However, a subsequent 90-day suspension of these tariffs provided temporary relief to markets
- Key global triggers include the trajectory of U.S. Federal Reserve interest rate decisions and the potential escalation of trade tensionsTariff-related developments are likely to keep markets volatile in the near term
- However, if the potential trade war unfolding between the US and China, continues or worsens it will slow down global growth and will impact India as well albeit with lower intensity
Domestic
- Geopolitical tensions caused uncertainty with respect to India’s relations with neighboring countries
- While RBI’s 25 basis point rate cut boosted sentiments, concerns over rising food prices and the impact of early heatwaves tempered investor optimism
- The rupee remained stable throughout the fluctuations while Indian bond yields dipped below 6.5%, providing support to equity markets
- So far, earnings have shown a promising start. If major downgrades are avoided and tariff-driven volatility eases, valuations could support a more optimistic market outlook in the coming quarters
- Earnings season also commenced with tepid results by IT sector. This coupled with uncertainty in global demand outlook weighed on the sector performance
- Following that, companies across sectors gave business updates and so far, it looks like consumer-oriented sector would continue to see another lacklustre quarter
- India appears relatively better placed due its large domestic consumption driven economy amidst global turmoil
What could happen in May?
- Even though expectations are muted, valuations are still expensive in many pockets of mid and small cap segments
- Geopolitical tensions, tariff negotiations and global economic conditions will continue to play a crucial role
- The market is underestimating the impact of tax cuts for consumer sector as well as RBI’s policy pivot
- Current Nifty valuations are close to long term average which supports a positive long-term return outlook
- Corporate earnings reports, especially from sectors like financials and consumer goods will play a pivotal role in shaping market dynamics
- Select midcap and smallcap names with solid fundamentals may outperform in the medium term
- Themes like China+1 manufacturing, defence, power transmission & distribution, rural consumption, pharma and NBFCs are expected to do well
- Valuations have entered a comfortable zone following the recent correction
- The stability of the rupee could attract foreign fund inflows, providing further market support
- Personal tax rate cuts and expectations of a normal monsoon could drive a rebound in consumption next year
- Two events that can impact markets in the near term - India – Pakistan relationship and US trade tariff policy
- A modest recovery in rural incomes will lead to improvement in consumption as well growth in infrastructure
- Flows both domestic & FPI will be a key variable to watch out in May
- Considering the current global geopolitical scenario, Indian equity markets should outperform US or Chinese equity markets from here on
Recommended Funds
Amay Sathe, Fund Manager, Tata MF
- Flexi cap fund category is well suited for potential long term wealth creation
Bhalachandra Shinde, Associate Fund Manager, Motilal Oswal MF
- Sectoral and thematic funds targeting defence, manufacturing and healthcare can be a good option. Investors should also look at flexi cap and small cap funds
Dikshit Mittal, Senior Fund Manager - Equity, LIC MF
- Diversified equity funds such as multicap funds or flexicap funds could be viable options. For conservative investors, hybrid funds like balanced advantage funds or multi-asset allocation funds can be beneficial
Karthik Kumar, Fund Manager, Axis MF
- Funds that invest across market-cap like flexi cap funds or multi cap funds are recommended
Satish Ramanathan, CIO - Equity, JM Financial MF
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A general diversified fund as value and flexicap may serve a good starting point, while nuanced investors can choose between a mid cap fund and small cap fund. The hybrid fund is targeted at investors with a lower risk profile
Sorbh Gupta, Senior Fund Manager- Equity, Bajaj Finserv MF
- For more risk averse investors, hybrid funds like dynamically managed balanced advantage funds or yield focused multi-asset allocation funds are more suited. Investors who are undeterred with near term volatility can look for diversified equity funds which align allocations in line with emerging mega trends
