Got Rs 10 lakh to invest? Here's the best option to get the most out of this market

The Indian equity market seems to have stabilised with the Sensex and the Nifty marching north-bound for four days in a row after the headline indices corrected more than 10 percent since their peaks scaled in September.

The Indian economy, however, appears to have slowed down and experts believe that the pain for the equity market was not over yet as a sluggish growth in corporate earnings would be the next setback waiting to unfold.

According to Pankaj Murarka, who founded Renaissance Investment Manager, a portfolio management service (PMS), the consensus expectation at the start of this year was about 14 percent growth in corporate earnings, but it might end up with around 7 percent.

He believes that the Indian market will spend some more time in the consolidation phase.

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“Markets can go to 22,000-22,500 kind of levels, which is a fair value, when we look from a 12-18-month perspective. Given the fact that we had such a ferocious move in the stock markets in the last 18 months, a consolidation of 6-9 months will make the markets only healthier and probably make valuations more aligned to the growth trajectory,” Murarka said.

Then, what is the best for a mutual fund investor?

Murarka suggests that a flexi-cap fund would be the right place for investors in this market.

Flexi-cap funds invest a minimum of 65 percent of their assets in equities, but without any restrictions on how much they can invest in large-cap, mid-cap, or small-cap stocks. As of end-October, flexi-cap as a category had 62.68 percent exposure to large-cap stocks, 14.52 percent to mid-cap stocks and 11.66 percent to small-cap stocks.

“While on a broader basis, valuations are elevated in mid-caps, there are pockets of froth in mid-cap and small-cap segments, especially in poor quality names. If you select your mid-cap stocks on the bottom, I still think money is to be made there as well,” Murarka said.

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The Renaissance founder is of the opinion that it is important for investors to invest in quality portfolio. “Quality of companies and quality of businesses protect the downside for investors in a in a falling market. Good quality stocks will fall much less or they have much lower volatility or lower beta,” he said.

According to Murarka, the Indian markets are expected to remain volatile over the next four to eight weeks. “I think volatility will continue till February because Donald Trump assumes office (as US president) on January 20, 2025, and then we have the Union Budget in February.”

At the same time, he believes, India is in the mid-cycle of a bull market, which effectively started in March 2020. “The first day of the lockdown was the bottom of the equity markets. We are in the fifth year of this long-term bull market now,” he said.

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“However, in the short term, around one year, the stock market has run ahead of fundamentals. The markets will spend some time in this consolidation phase,” Murarka added.