November 2018: Market views of top mutual funds for equity and debt marketsAfter a deep correction in September and October – following the debt crisis that emanated from the IL&FS default and the consequent liquidity crunch in the Indian financial markets, and a spurt in global  crude oil  prices, and a looming trade war – the markets have started bouncing back a little. Although there are headwinds for the markets in the form of election uncertainties and other global economic worries, there are pockets of opportunities for investors. We compile the views of five top mutual funds on the investment outlook based on their market views of October 2018:

So how did October 2018 go?

Equity View

• Globally, markets witnessed weakness due to the escalating tensions around trade wars, slowing growth, and rising interest rate scenarios.
• FPIs sold Indian equities worth US$3.9 bn
• CPI inflation delighted the markets with a low 3.8% in the month of September against the market expectation of 4%.
• India’s trade deficit narrowed to $14bn from $17.6bn in the past month.

If that was October, here is the market outlook of top mutual funds for both equity and debt markets:

 

Mutual Fund Market Outlook
HDFC Mutual Fund Equity: The opportunity created by correction in Indian markets should be used by investors to increase allocation to equities, especially in multi cap / large cap Funds in a phased manner or in staying invested as the case may be (for those with a medium to long term view and in line with individual risk appetite).

Fixed Income: The Monetary Policy Committee (MPC) minutes released for its meeting held in October 2018 were in line with expectations and reinforced the view that next rate hike will be data dependent. However, given the elevated crude oil prices and the consequent pressure on currency, we prefer to maintain a cautious stance. Additionally, the impact of higher MSPs on food prices, credit growth outpacing deposit growth, fiscal pressures and rising US bond yields are other factors which need to be closely monitored.  In our opinion, the front end of the yield curve continues to offer better risk adjusted return than the longer end and hence, we continue to recommend investment in short to medium duration debt funds.

ICICI Mutual Fund Equity: Investors may continue with their investments in pure equity schemes. As uncertainty regarding global events and run-up to elections cannot be ruled out, we believe the markets could be volatile in the near term. Hence for new investors, we recommend investing in asset allocation schemes. Investors looking for long-term exposure could consider investing systematically in small and midcap schemes. Investors looking for tactical allocation could invest in thematic schemes encompassing export and services, pharma and manufacturing sectors.

Fixed Income: Markets would remain nervous on account of the rupee depreciation, widening fiscal deficit, and global interest rate scenario. Domestically, GST collections, which crossed the Rs 1 lakh crore-mark, will be watched closely in the run-up to the elections as will the government’s efforts to contain the fiscal deficit. The AMC therefore, recommend investors to stick to low duration schemes which can mitigate interest rate volatility, accrual schemes which can capture the current yields and dynamic duration schemes which can benefit out of volatility.

ABSL Mutual Fund

 

Equity: The recent correction provides a good opportunity for prudent investors to build equity exposure for the long term. Investors will be better off doing SIPs/STPs for the next 6-9 months, rather than lump sum investments, so as to benefit from any fall in the market. It would also be prudent for investors to allocate 20% of their corpus to midcap and smallcap funds. Valuations in that space have become reasonable and AMC remains constructive on overall economic growth.

Fixed Income:  Markets have seen a period of stability after long time in currency as global equities took centre stage during the month. Sustained risk-off took a toll on global asset prices, which pushed commodity prices also lower, with Brent trading lower than $75. A combination of the above factors along with a flurry of RBI OMO purchase has created an environment of a tactical trade for going long on Govt Securities. AMC used this opportunity of going slightly overweight on duration. The conducive environment for playing tactical overweight through Govt Securities still prevail and AMC is thus maintaining that positioning in the portfolios while retaining the flexibility to quickly react to both favourable and adverse market developments.

Kotak Mutual Fund Equity: From investors’ standpoint, lots of wealth possibilities are visible over the long term. The short term may still have much volatility stored for investors. In this scenario, risk averse investor may look at Kotak Balanced Advantage fund for their investment purpose. Investors with high risk appetite may allocate in Kotak Small Cap fund for his/her investing needs; while risk neutral investors can look at Kotak Standard Multicap Fund for investing requirement. Having said that, investors may be better-off staggering their investment and use dips as a buying opportunity.

Fixed Income: Over very short tenure of 3-6 month the AMC thinks debt markets could be volatile owing to tight liquidity conditions, global risks & currency depreciation. The interest rates are likely to stay elevated. For medium tenure of  6–month to 2 years view on inflation, liquidity and currency is positive. The interest rates are likely to cool off over this period.

Franklin Templeton MF Equity: Although trend in consumption demand indicators has turned mixed, investment indicators and nascent recovery in private capex continue to bode well for the broader recovery in the economy. Recent correction in the equity markets supported by earnings growth provides comfort for equities. Existence of stock specific opportunities and the fundamental strength of the economy warrant a positive long term view on Indian equities. From an investment perspective, diversified equity funds with core exposure to large caps and prudent risk-taking in mid/small-cap space may be well positioned to capture medium to long term opportunity presented by the equity markets.

Fixed Income: Short term maturity instruments look attractive from a valuation perspective. From an investment perspective, we suggest investors (who can withstand volatility) to consider duration bonds/gilt funds for a tactical exposure over the short-term horizon. We continue to remain positive on corporate bond funds and accrual strategies. Investors who are looking for accrual income opportunities may consider corporate bond funds that offer higher yields.

RupeeIQ Take: Majority of the mutual funds seem to be advising investors to make most of the opportunity that is present in equity market owing to recent correction. We think the mid caps & small caps are in sweep spot right now as valuations in this space are starting to look attractive and allocating a portion of one’s portfolio towards midcap/small cap oriented funds is prudent. However, events like trade war & domestic elections continue to pose threat to our thesis. We believe India‘s long term growth story stands strong thanks to the sound macro environment. We would suggest investors to participate in equities through SIP/STP route.

From fixed income stand point, short term yields have spiked and locking these yields would benefit the investors in future. Many AMCs believe the yields may rally from here and thus participating in funds with little higher duration would help generate higher returns. We think, investors looking for lesser volatility may choose short duration accrual funds and investors with a little higher risk appetite may invest in funds with little higher duration.

Disclaimer: This article is only for your information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision. 

Author
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com