Equity markets likely to see more volatility: Nippon India MF CIO
The outlook for Indian stock markets remains bullish, aided by an expected rebound in the Indian economy and corporate earnings that are gaining ground, but there is likely to be a lot of volatility along the way, one of the leading said on Tuesday. mutual fund managers.
After hitting new records last week, the stock markets have seen a sell off over the past two days. On Tuesday, BSE Sensex plunged 355 points or 0.7% to close at 52,198.51. The NSE Nifty 50 also finished 0.8% or 120 points lower to end the day at 15,632.10 points. On Monday, the Sensex and the Nifty had finished down 1%. Investors in all markets fear that COVID-19 cases are on the rise again in many countries, including the UK and US, posing a threat to the emerging recovery of the global economy.
“The short term is strongly correlated with what is happening in global markets. What is happening today is in large part because global markets have been rocked by some of the resurgence of COVID-19 cases in the United States and the United Kingdom, although death rates and hospitalizations are still quite low, ”said Manish Gunwani, investment manager of Nippon India Mutual Fund. It is one of the largest fund houses in the country with average assets under management of over Rs 2.40 lakh crore.
Every month since April 2020, market returns have been broadly positive, Gunwani noted, adding that this type of trajectory is unlikely to continue for the next 12 to 18 months.
“I expect we will have a lot more volatility than we have experienced in the past 15 months. The reason is that valuations are now higher than 15 months ago around the world, the liquidity of central banks like the US Federal Reserve is now more nuanced today. With the return of economic growth, central banks will try to normalize. So there will be some tightening of liquidity. And that virus thing. , there will be ups and downs depending on the news feed, so there are many factors by which this type of volatility will occur, ”he said.
Despite the expected volatility, Gunwani says several triggers will bode well and focusing on good companies with growing profits will generate healthy returns for investors.
“The national economy is heading towards a very healthy phase. Globally, vaccinations have helped to significantly reduce deaths from COVID-19. Slowly the penetration of vaccination in India is increasing. Hopefully in a few months we should have this problem behind us. The global economy surprises on the rise. In India, in nominal terms, we have interest rates that are at their lowest over 20-30 years, mortgage loans are cheap, businesses can borrow at low cost … From FY21, the The corporate earnings cycle also appears to have reversed and the earnings outlook for the next two years looks promising. Given these positive elements, we believe the markets can generate stable and healthy returns, ”Gunwani said.
Nippon India Mutual Fund announced on Tuesday the launch of its Flexi cap equity fund, which will invest in a diversified portfolio of large, mid and small cap companies. The new fund offering will open on July 26 and close on August 9.
SEBI introduced the Flexi cap fund category in November 2020 and it has recently seen strong growth with several fund houses launching their NFOs in this category. ICICI Prudential Flexi cap fund recently posted a record high of over Rs 10,000 crore through its NFO.
“The current market situation creates an investment opportunity in Flexi cap funds. A Flexi cap strategy can dynamically adapt to various market scenarios and therefore has the potential to outperform through market cycles, ”said Gunwani.
Small and mid-cap stocks have advanced strongly over the past year and Gunwani believes there is still room for growth.
“2018 and 2019 were brutal for mid and small caps. Over the past year, mid and small caps have performed well. But, if you see on a three-year basis, essentially, the performance of large and mid-cap indices is broadly the same and we believe that over the next 1 to 2 years, mid-caps still have room for improvement. outperform. . With the economy returning over the next year, mid caps tend to have more operational and financial leverage and a recovering economy results in better earnings growth, ”he said.
In addition, many new era companies such as chemicals, internet and network companies which are now going public will also rank in the mid and small cap space and over the past year some of these companies generated reasonably good returns. for investors, Gunwani said.