Equity Outlook: How will the new FY kick start?
Dikshit Mittal of LIC MF, George Thomas of Quantum MF, Ravi Gopalakrishnan of Sundaram MF and Shridatta Bhandwaldar of Canara Robeco MF share their equity outlook for April 2023.
March 2023 was an eventful month from a global context. And, given the collapse of two large institutions – US based Silicon Valley Bank and Switzerland’s Credit Suisse, uncertainties continue to prevail.
To understand the key market triggers hereon and how the new FY would probably kick start, Cafemutual reached out to industry experts.
The experts not only shared their overall outlook but also shared their sectoral and investment recommendations.
Dikshit Mittal, Fund Manager & Senior Equity Research Analyst, LIC MF
Overall perspective – On a global front, clarity on inflation can be a major trigger as central banks can then decidedly move to the rate cut cycle. In addition, contagion fears on the US banking system need to subside for any durable rally.
On the domestic front, a good monsoon is critical as the economy also seems to be slowing down, and a good monsoon can boost the consumption story in India, which has been a major driver of the economy over years.
In terms of valuation, midcap valuations are at par with large caps now and small caps are trading at discount to large caps. While the small cap index is down 25% from its all-time high, midcap and large cap indices are down around 10% each.
Promising sectors – BFSI, IT, capital goods and export-led manufacturing sectors appear positive. Some of the consumer facing companies have also seen valuation normalizing during the recent market corrections.
Investment avenues – Investors should consider either multi cap or flexi cap funds as these funds have a good mix of stocks across market capitalization. Risk averse investors should stick to large cap or large and midcap categories.
George Thomas, Fund Manager-Equity, Quantum MF
Overall perspective – Valuations are around the historic long-term average and have become reasonable while earnings momentum is likely to see a revival in the medium term. The reasonable potential for earnings growth over the next two years makes the market attractive at current levels.
Promising sectors – AMCs, broking and insurance sectors are likely to benefit from the long-term structural opportunity. Also, banks are in a favourable cycle and government’s push along with the potential revival may augur well for capex sector.
Investment avenues – Value funds which invest in companies that are attractively valued, typically due to temporary reasons are likely to perform well over the next decade.
Ravi Gopalakrishnan, CIO-Equity, Sundaram MF
Overall perspective – The Indian stock market has underperformed the global and Asian markets in recent months, which has moderated the premium. However, considering the long-term average and peers in the emerging and developed markets, we believe that there is some additional room for valuations to normalise.
In the near term, markets are likely to remain volatile given the global macros, rising inflation and interest rates. However, the longer-term outlook for the market continues to remain favourable.
Additionally, elevated government capex, improved execution on flagship social infrastructure and Production Linked Incentive schemes and a shift in the central bank narrative from inflation to growth are the key triggers to anticipate.
Promising sectors – We are currently overweight on financials, industrials, and auto and auto ancillaries’ businesses in the consumer discretionary sector.
Investment avenues – Investors could consider investing through systematic investment plans to capture long term growth opportunities.
Shridatta Bhandwaldar, Head Equities, Canara Robeco MF
Overall perspective – While the global macro and earnings growth worries are likely to persist till the first half of FY 2024, medium term market attractiveness has dramatically improved. Additionally, the valuation has started to move in a comfortable zone after the last 18 months of market consolidation.
Also, the recent banking crisis in US/Europe could result in faster correction of growth, inflation and cost of capital globally – a positive for emerging market valuations in general.
Promising sectors – We expect relatively resilient earnings in financials, industrials, auto, telecom, hospitals and hotels.
Investment avenues – Given the complex global macro environment, flexi and large plus mid categories make sense where one gets majority exposure to large caps and some exposure to mid and small caps