Earnings growth is expected to moderate to 12-14 per cent CAGR over FY24-26 with some interim but short-lived slowdown as currently witnessed in the second quarter of FY25, stated a report by Alpha Strategist Report from Motilal Oswal Private Wealth (MOPW).
During October, most of the emerging markets have emerged FII outflows amid uncertainty around US election, geopolitical tensions in middle east, stimulus announcement by China and rise in US yields. However, the report added, for India, these outflows were exacerbated by the ongoing result season that failed to justify valuations. Correction, it said, was more pronounced in sectors that saw sharp rally in the past one year and especially in companies that failed to meet market expectations on earnings.
The report noted that despite the intense FII outflows of $12 billion within a very short time span, the INR has shown resilience compared to past such incidences, indicating India’s strong macroeconomic fundamentals—robust GDP growth, controlled inflation, managed twin deficits and record foreign reserves. Further, India’s contribution to world market cap has also grown from 1.7 per cent in 2013 to 4.3 per cent currently, and in terms of the market cap ranking India has improved from 17th to 5th. Equities as an asset class is also gaining allocation in the Indian household savings.
According to the MOPW report, one must be cognizant of the fact that equity market returns are not linear. Markets have witnessed intra-year drawdowns of 10 per cent or more in 22 out of the last 25 years and investors should always be prepared for such sharp bouts of volatility. Hence, the brokerage firm reiterated its stance of focusing on “Fundamentals over Flavour” i.e. companies with strong businesses showing sustainable growth rather than chasing market trends.
MOPW noted that post this correction, Large Caps valuations have come in the fair range almost at par with long term average, while Mid & Small caps on aggregate continue to remain relatively expensive. It believed that after a strong rally over the last 2 years across market caps, future returns expectations should be moderated in line with earnings trajectory. Hence, MOPW suggested adopting a staggered investment approach over 3-6 months for Large cap & Multicap strategies. For select Mid & Small cap strategies, investments should be staggered over the next 6-12 months. Equity oriented hybrid strategies can be considered for lump sum deployment, it said.
Equity Market Outlook
In the long term, the report stated, the equity market outlook is positive due to corporate deleveraging and expected healthy earnings over the next two years. However, short-term volatility is anticipated due to global uncertainties.
Fixed Income Portfolio Strategy:
MOPW said that 30 per cent of the portfolio may be invested in:
- Actively managed duration funds to capitalize on evolving fixed income scenario.
- For passive duration allocation, one may invest in long term maturity G-sec papers/funds with 15-30 year average maturity to benefit from accrual income and potential MTM gains.
30- 35 per cent of the portfolio shall be allocated to Multi Asset Allocation funds & Equity Savings Funds
To improve the overall portfolio yield, 30- 35 per cent of the overall fixed income portfolio can be allocated to Private Credit strategies, InvITs & select high yield NCDs.
For liquidity management, investments can be made in Floating Rate (9 to 12 months) & Arbitrage Funds (minimum 3 to 6 months).
Gold Outlook
Looking ahead, the gold market is poised to navigate through diverse influences. “The intersection of geopolitical developments and macroeconomic indicators will likely continue to create volatility, with gold serving as an attractive option for investors seeking risk mitigation. Additionally, the US elections just concluded, may change market dynamics, although the impact on gold will depend on the specific policies enacted by the incoming administration,” it said.
Silver Outlook
As per the research, Silver has a strong demand outlook.