The equity market is in wait-and-watch mode ahead of general elections and volatility will persist until May, according to Gaurav Misra, Senior Fund Manager, Mirae Asset Mutual Fund.
He added that except for a possible electoral swing, either way, it may not impact the medium-term outlook for the market. By FY20-end, he expects the market to be in an upward bias.
In six months till the end of February, while the Sensex shed 8.5 percent and Nifty fell 7.60 percent, the India Volatility Index was up 45.08 percent. In other words, investors are expecting the markets to change by 45.08 percent.
India stands out
An IIM from Lucknow, Misra believes India stands out as the fastest-growing economy among large emerging markets, given its stable macro environment. In case of any downside in the market, the attractive valuations will improve allocations to India, he stated.
DII/FII flows
Speaking on investments from domestic institutional investors (DII) and foreign institutional investors (FII) in the equity market, Misra said, “The domestic part (investments) should remain robust. The FII part could reverse. We have already seen strong FII inflows in February."
The Indian market saw its highest buying from FIIs in February at Rs 16,000 crore. FIIs were net buyers after having exited assets worth Rs 21,000 crore from April 2018 till February 28.
"For the year as well, we should see an improvement in FII flows from last year because of time correction, improving valuations and expected earnings recovery," he added.
According to Misra, technical factors like the US Federal Reserve going slow on the monetary tightening stance will help and counter outflows on account of the increase in Chinese shares in the MSCI indices.
On February 28, index provider MSCI said it will expand the weightage of Chinese stocks in its key emerging-markets index by more than four-fold in May.
View on smallcaps
Smallcap stocks have been beaten down significantly in the past couple of months. He expects this segment to consolidate and possibly witness a better outlook by the second half of FY20. This is based on the premise that earnings will improve, "largely driven by turnaround in corporate lenders."
However, Misra sounded a note of caution to investors looking to invest in this space. “Smallcaps are typically more vulnerable on all fronts – management, economic/competitive forces, and flows/price impact. So, investors should be sure of their investment objectives, allocation, and horizon,” he said
Sectoral betsThe fund house is overweight on private banks (both retail and corporate lenders). “Retail banks will continue to grow profitably and gain market share over the public sector banks and now NBFCs and corporate lenders as their operational performance is looking up,” Misra, who has spent over 23 years in fund management and research, said.
The fund house is also positive on the consumption category through strong franchisees in discretionary, retail and durable segments. "These segments will see a decent growth, given the favourable long term structural dynamics and benefits accruing to the organised sector from rollout of the Goods & Service Tax ."
He is also getting incrementally positive on the pharmaceutical sector as well but is underweight on PSBs, infrastructure/construction, real estate, and consumer staples.
Misra, who is the co-fund manager of Mirae Asset India Equity Fund, manages assets worth Rs 10,343 crore. In the last one-year period, the scheme has delivered 6.20 percent average returns.
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