New bull market or correction on cards? Here’s where investors can make money now | Aditya Birla MF interview | The Financial Express

New bull market or correction on cards? Here’s where investors can make money now | Aditya Birla MF interview

Indian equity markets may witness pressure in near term, given the uncertainty on the global front. The upside from here will be a function of stability in global and local macro conditions.

New bull market or correction on cards? Here’s where investors can make money now | Aditya Birla MF interview
Markets to remain in a range-bound phase until clarity emerges on global macro conditions

Indian equity markets may witness pressure in the near term, given the uncertainty on the global front. The upside from here will be a function of stability in global and local macro conditions, and continued earnings delivery versus expectations, said Mahesh Patil, CIO, Aditya Birla Sun Life AMC in an interview with Harshita Tyagi of FinancialExpress.com. Overall, markets are expected to remain in a range-bound phase until clarity emerges on global macro conditions, he said adding that banking, utility, consumption, PSU stocks are among the top bets. There are many emerging companies that are coming up lately thus providing opportunities to generate alpha, Patil said.

Also Read: Indian bonds’ inclusion in JP Morgan’s EM index to be game changer for Rupee; US Fed meeting major trigger

What is your assessment of the current market movement?

Global equity markets have seen some correction due to the challenging macro backdrop. The latest inflation data point in the US has come in higher than anticipated which could lead to the Fed raising rates aggressively for longer than expected, the Russia-Ukraine conflict may see an extended standoff, Europe is facing an energy crisis, and the Chinese economy is seeing a slowdown. Hence, we may continue to witness bouts of volatility in the near term. While there are still some concerns regarding the global macro environment, India is in a relatively better position. Healthy domestic macro data, continuing FII and domestic flows, correction in brent crude prices and expected improvement in festive demand are key positives for Indian markets in the near term. Hence, Indian equity markets have outperformed global markets so far.

Has a new bull market begun or is correction on cards?

Indian equity markets have been a standout lately in terms of relative outperformance versus other markets. The current rally in the Indian markets has been led by the recovery of the domestic economy, lower-than-expected earnings downgrade, positive FII flows and continuing domestic flows. However, post the recent rally, the Nifty trades at a premium to its long-term average PE. Also, the valuation of Indian equities is at a significant premium to other emerging markets warranting some caution. Given the uncertainty on the global front, we could witness some near-term pressure. We believe the upside from here will be a function of stability in global and local macro conditions and continued earnings delivery versus expectations. Overall, we expect markets to remain in a range-bound phase until clarity emerges on global macro conditions. However, over the medium to long-term, Indian markets are poised for structural growth with better positioning relative to other markets driven by various key themes in the form of discretionary consumption, and the China+1 strategy thus stimulating speciality chemicals and domestic manufacturing sectors.

Where do you see value in markets now?

The banking & Financial services space which has kickstarted a new growth phase is expected to show improvement going forward. A significant boost in credit growth with continued traction in retail and an uptick in services and industry has been positive. On an overall basis, banks are comfortably placed on the capital adequacy front and have excess capital to deploy. Industrial activity has yet to pick up meaningfully and could drive the next leg of growth. Asset quality has also been on the mend with diminished corporate stress and higher provisioning buffers. Other sectors where we also see value include PSUs and utility space.

Which are some other areas where investors can make money?

Though markets have run up in the recent past, few domestic themes have a long-term structural story intact and thus investors can benefit from the same. With lower penetration levels and rising discretionary spending, the Indian consumption story has just begun, hence this would provide a fillip to discretionary and retail sectors. Other key themes of interest in the form of China+1 include speciality chemicals and domestic manufacturing sectors.

Also Read: India’s robust growth momentum may create macro stability challenges for economy

What is your view on overall markets – large cap vs mid/small cap?

On the valuation front, both large and mid & small caps have been trading above their long-term averages currently. We have witnessed that mid and small-cap stocks have rebounded significantly over the last two months and outperformed the large caps during the same period. However, mid and small caps are still ~2% and ~19% lower than their all-time highs respectively and have the potential to catch up if the broader rally continues. However, in the short term, if the markets consolidate at the current levels, large caps should outperform the mid and small cap segments given higher pricing power, lower funding challenges during a higher interest rate environment and higher earnings visibility. At the same time, the Indian economy is expected to be in an expansion phase over the next 3-5 years and be amongst the best-performing economies in the world. Since small and midcap companies have more exposure to the domestic economy than the large-cap companies, they would tend to benefit to a greater extent and hence we remain constructive on the mid-and-small cap space over a long-term horizon. Also, there are many emerging companies that are coming up lately thus providing opportunities to generate alpha.

(The recommendations in this story are by the respective expert. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.