Market volatility: What should investors do? - Times of India

Market volatility: What should investors do? – Times of India


Off late the Indian equity market in line with global markets have turned volatile. Markets have been on edge due to geo-political tension coupled with the US Fed and other global central banks embarking on a tapering and probable rate hike journey.
However, when looked at from a domestic perspective, India seems to be on a strong footing. This has been largely possible because the Government has already set the ground for a strong economic growth over the next decade through passage of bold reforms such as RERA, GST, Insolvency & Bankruptcy Code, China + 1 strategy, reduction in corporate tax rate etc. to name a few. This was further bolstered through Budget 2022, wherein the Government with its stable tax policy, focused on programmes to encourage capex in infrastructure (multiplier effect), focus on new age, sunrise sectors, all of which was very well accepted by the market.
Thus far, the macroeconomic handling of the economy. since the onset of the pandemic period has been exceptional along with the support of the RBI through its monetary policy measures. As a result, Indian economy has been a resilient one.
Keeping pace with the economy, corporate earnings too appear to be on a mend. India corporate profit to GDP had fallen from 8% in 2008 to 2% in 2021. In the days ahead, with the growing economy and rising inflation trajectory, we believe corporate earnings will improve over the coming quarters. Despite the rise in input costs, India Inc’s third-quarter performance data shows that consolidated net profit of Nifty companies (ex-BFSI) jumped nearly 30 per cent year-on-year (YoY). Gross sales too increased 29 per cent YoY during the same period. It is estimated that the Nifty50 corporate earnings are expected to rise by 30% in FY22 and another 15% in FY23. Given India’s growth prospects, the FY23 valuation which is currently trading at around 20 times looks reasonable.
In terms of sectors, we are optimistic on manufacturing theme. Since 2018, China is becoming increasingly non-competitive in manufacturing due to pollution control norms, rise in labour costs etc. This augurs well for manufacturing across rest of the world and gives Indian manufactures the opportunity to improve their profits and gain global market share. Another sector we are constructive on is the banking sector, especially large corporate banks. As the economy recovers, large corporate banks which are reasonably positioned in terms of net stressed loans, growth outlook, CASA and resilient portfolio stands to gain. Also, gross NPAs have been largely contained for large private banks. Over FY19 to FY21, certain private banks have registered double digit loan growth, which is higher than the industry growth and have improved their market share as well.
Autos, we believe is a space which currently offers value as it is available at reasonable price. The sector has been under stress due to pandemic induced lockdowns but there are companies here which enjoy strong balance sheet and good corporate governance. Among the defensives, pharma holds the potential to render stability to portfolio while providing reasonable upside.
Another aspect in favour of Indian equities is that unlike the United States, India is far from peak both in terms of corporate profits and valuations in terms of market cycle. In effect, the long term outlook looks promising.
What should an investor do?
Keeping in view all of the scenarios, at a time when equity as an asset class is no longer cheap, it is prudent for investors to take a calibrated approach. The easiest way to navigate through such uncertain times is by adopting an active management approach and recommend schemes which have the flexibility to invest across different asset classes, market cap and themes.
Historically, data shows that winners keep changing every other year. For example: While equity was the chart topper over the last two years, gold led the returns chart in 2018 and 2019 by delivering returns to the tune of 24.6%. Similarly, debt too had its years of outperformance. This is where scheme category such as the multi-asset comes in.
By investing in a multi asset fund, an investor gets exposure to several asset classes within a single offering. Here, depending on the market situations and various other factors, the fund manager has the flexibility to make the most of the investment opportunities across sectors. Also, a fund manager will be monitoring the portfolio regularly to mitigate potential risks and provides tactical allocation to a particular sector. Most often such funds have exposure to equity (in some cases even international equities), debt, gold and other asset classes. The basic premise is equity provides the growth element through capital appreciation while debt renders the much need stability to the portfolio. Gold, meanwhile provides hedge against inflation. Given that an investor gets access to various asset classes within a single fund, investors can consider this category for lump sum investor in the current market environment. Here, an investor does not face any tax impact when the portfolio is rebalanced, making it a win-win for the investor.
(Nimesh Shah, MD & CEO, ICICI Prudential Mutual Fund)


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