Got Rs 10 lakh to invest? Tata MF’s fund manager picks 3 mutual funds to ride out volatile markets

Earnings season has started. What are your expectations from IT companies?

Fourth quarter, particularly this time around, might be a little softer. What actually will be critical this quarter is the outlook shared by the management.

Since this is the start of a new fiscal, most managements guide us on numbers, and more importantly, give a sense on how the coming years are looking like. This will be key given the challenges of the recessionary concerns and the increasing global interest rates.

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Major tech giants, globally, are witnessing a wave of layoffs, and there have been some headwinds when it comes to Indian IT companies. Given this, which one would you rather pick, global IT or domestic IT companies?
It's not necessarily a headwind for the Indian IT. In fact, in some cases, it might also become a tailwind, wherein the work gets outsourced to countries such as India as the cost of execution of a similar contract or a deal would be at a fairly lower price here.

In the past too, whenever there has been any recessionary or slowdown phase in the global economy, it's was followed by a higher outsourcing to countries like India.

We can take the example of Global Financial Crisis (GFC) in 2008. We have seen a steep jump in the outsourcing numbers post GFC. Given the circumstances right now, Indian IT companies are better placed in terms of the growth outlook.

Coming to pharma, this category has seen a bit of selling. Has it become attractive after the correction?

When I look at the sector since 2015, the peak that we made for the Nifty Pharma benchmark, and when I look at the number now, we haven't gone anywhere. So, valuations definitely are looking pretty attractive. But one also has to remember the sector has underperformed due to continuing challenges in the US and the generic pricing pressure.

Now, we are seeing companies re-evaluating their capital allocation to a region like the US, because of the completely depleted ROCs and intense competition as well as the regulatory requirements, companies are definitely rethinking and going back to their drawing board on whether they want to continue to be in the US.

This should lead to lower competition going ahead. Based on valuations, and some green shoots in the US generic market, makes this sector is looking quite appealing. Domestic pharma is also steadily growing.

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You have 35 percent allocation to the banking sector in Focused Equity Fund. Would you look to change this given the run-up in the banks in the past year or so?

We are good as of now. And as far as the outlook is concerned, I think banking still is giving a lot of comfort on the growth front based on the balance sheet and the way NPAs are cleaning up. Even if we look at the corporate India balance sheet, that looks pretty strong at this point in time.

Also, we are just starting to see the capex cycle revival from the private sector. So, I think all of this put together makes banking still look pretty promising among all the other sectors, and we will continue to be more constructive on this sector.

What are your views on the market for the next eight months of this year?

Things are looking pretty good for India. As I mentioned before that banking is doing well as a sector, corporate India is in a very good health. We are on the verge of a private capex cycle revival after a pretty long time.
There will be some concerns or cautions. If monsoon is weaker than expected, that may pose some kind of risk. We will also have to keep an eye on Inflation numbers.

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So, there are some near-term risks, but I think the broader risk could be from the global side, as we have to see how the global economies will get stabilized, where the interest rate hikes start getting paused and how deep or shallow the recession there is.

Ultimately, we are a part of the global economy and if there is a deep recession in the large global economies, then we will have some rub-off effect of that. So, the concerns are more global than internal.

So then, where should I invest my Rs 10 lakh right now?

Given that 2023 is the year when markets are probably going to be rangebound and things might pan out similar to what 2022 was. Volatility is also expected to remain slightly on the higher side.

Therefore, something like a balanced advantage fund is what we are recommending for our investors, given the volatility expected in the markets.

Second leg would be the funds where you have an opportunity to buy into across the market-caps; large-caps, mid-caps and small caps. So, something like a flexi-cap or a multi-cap fund, focused fund and even a large & mid-cap fund, where, as the market starts giving opportunities, these funds can reallocate their assets into mid and small-cap names, which helps in alpha generation.

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Third will be a pure sectoral fund, but again, the risk appetite here is on the higher side. Here infra and banking is something that we are asking for structural call and pharma more from a contrarian perspective.