Markets in unprecedented territory, too early to make calls, say fund managers

Markets in unprecedented territory, too early to make calls, say fund managers

On April 7, the Indian equity markets witnessed a sharp sell-off, with the benchmark indices falling around 3 percent amid global selling triggered by reciprocal tariffs announced by the US on April 2, and subsequent countermeasures by China and other countries.

While India has outperformed many global peers, fund managers are keeping a close eye on how the situation evolves in what many are calling an “unprecedented” global environment.

Christy Mathai, Fund Manager at Quantum AMC, notes that the developments around tariffs are unusual and could reshape global trade strategies.

"As a reaction, the entire trade setup will need to go through a period where corporates have to really think about how they want to do business with the US etc... Our sense is that this commentary from the US, especially by Trump, is driving a lot of it," he said.

Rajesh Bhatia, CIO, ITI AMC, adds: “I think what has been concerning is that the global markets have taken cognizance of the fact that this could lead to a recession, not only in America, but in the whole world."

But despite the turbulence, A Balasubramanian, Managing Director & CEO of Aditya Birla Sun Life AMC, sees India’s fundamentals holding steady.

"India’s domestic fundamentals remain strong. Since it’s a large economy, the direct impact from the tariff changes will be minimal. Additionally, falling oil prices could help reduce inflation, potentially leading to rate cuts that would support growth," he said.

Has the market bottomed out?

Fund managers say it is too early to say whether the market has bottomed out or not.

Anish Tawakley, Co-CIO (Equity) at ICICI Prudential AMC, says, "The recent bout of volatility is largely driven by global economic uncertainties... As to whether the market has bottomed out, it’s too early to say. The environment remains uncertain."

Bhatia concurs. “Anybody who tells you that the market has bottomed out is probably either lying or is a fool,” he said.

On a more optimistic note, Balasubramanian notes that while the market has faced sharp declines, erasing 1–1.5 years of gains, such volatility is usually short-lived.

“India could probably be insulated from any global shock, owing to a strong domestic economy. Also, policymakers ensure that necessary course correction is implemented to bring stability and execution of policies," he says.

Turning selective

Despite the market turmoil, most fund managers see opportunity in large-cap equities. "Even before this whole tariff issue, large-cap pockets had become quite attractive from our perspective," said Mathai.

Most fund managers Moneycontrol spoke to said that they will be looking to deploy cash as and when opportunities arise, adding that the decision is more fundamental-driven and not entirely a sector call.

Tawakley said from a valuation standpoint, large-cap stocks are reasonably priced and they remain more cautious on smallcaps.

Sectors in focus

Most fund managers see opportunities emerging in domestic sectors. Tawakley adds: "We are constructive on domestic cyclicals—such as automobiles, financials, industrials, and capital goods... they are well-positioned to deliver healthy returns."

Another sector that has opportunity, according to Mathai, is private banks that remain relatively insulated.

"Their business is largely domestic... so they’re in a better position." He adds that within large caps, there are headline sectors like IT and pharma that are at risk. “The point is they are viable at certain price points. Take IT, for example. Once it starts trading at a certain FCF (free cash flow) yield, you’ll see buyers coming in aggressively," he adds. Currently, FCF yield is around 3-5 percent.

Kotak AMC’s Nilesh Shah added: “Domestic themes like cement, building materials and consumer discretionary look attractive from a longer term point of view. The tax rebate announced in the budget, EMI burden coming down due to lower rates, likely drop in oil prices and the implementation of the eighth pay commission recommendations be next year will support the consumption theme.”