As a result, Manish Gunwani of Bandhan Mutual Fund believes it is time to remain at average allocation to equities.
“Investors based on their risk appetite should have a long-term allocation level to equities, but during this time, it does not seem suitable to be much above or lower than this,” Gunwani, head – equities at the fund house, said. Edited excerpts:
How do you expect equities as an asset class to perform over the next 6 months? What are the major downside risks?
We expect the consolidation phase for Indian equities to continue for the next couple of quarters. While the earnings outlook for India remains resilient, global monetary conditions are tight, and growth is expected to slow down.
We believe the correction in price-to-earnings multiple is broadly done but until global interest rates come down, the upside may be limited.
The major downside risk is that due to the tight monetary conditions globally, a big credit event may occur which destabilizes the financial system.
Recent data showed that many MFs have increased their cash holdings amid an uncertain market environment. What is the percentage of cash you hold today vs 6 months ago?
In general, we are holding cash which is slightly higher than our long-term average. It is specific to each fund and strategy.
While SVB and Credit Suisse’s collapse don’t have a direct impact on Indian banks, do you think it shook investor confidence in the system?
There was some impact on Indian markets due to the issues around the US/Europe banking system, but we don’t think the impact will be material or long-lasting. However, it has kept global markets on their toes because we have seen one of the most intense bouts of monetary tightening in history and that is bound to put stress on some high-risk borrowers.
The Nifty 50 is trading at around 20x its trailing valuations for FY23. Which sectors or pockets look attractive and offer buying opportunities?
We are leaning towards sectors where we believe both valuations and growth expectations are reasonable. At this point, banks, automobiles, pharmaceuticals, and utilities are some of the sectors which look attractive.
As we enter a new financial year, how do you expect it to pan out for markets and what kind of portfolio allocation will you recommend to retail investors?
We believe this is a time to remain at average allocation to equities i.e investors based on their risk appetite should have a long-term allocation level to equities and during this time it does not seem suitable to be much above or lower than this.
Equity inflows have so far been positive despite the market volatility, but do you expect this trend to continue unabated and why?
We believe the market is likely to be range bound until monetary conditions ease globally. The relatively strong earnings outlook for India and improvement in macro conditions, especially the reduction in the current account deficit, will help India but if there is a big credit event globally or an acute slowdown, we should be ready for further volatility.
What kind of asset diversification would you recommend to investors today keeping in mind the overall risks and the plethora of opportunities?
We encourage investors to focus on their long-term goals and stay true to their asset allocation.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)