The stock market has been witnessing a strong rally, with Sensex and Nifty closing at all-time highs. Midcap and small-cap indices have also shown impressive growth, while realty, auto, and metal stocks continue to attract buyers. In a recent discussion with CNBC-Awaaz, Jayesh Sundar, Equity Fund Manager at Axis Mutual Fund, shared insights on market trends and sectoral performance, while outlining strategies for investors in the current market scenario.
Market Outlook: Growth Continues Amid Expensive Valuations
Jayesh Sundar began by stating that the market has been in a phase of correction and rotation over the past few months. While growth in the market remains positive, valuations have become quite expensive, especially in certain sectors. This, he pointed out, is leading to profit booking in areas where valuations have surged too high.
“Valuations are high in several sectors, yet growth looks promising. Investors should now focus more on the earnings and growth potential of companies rather than just chasing momentum,” said Sundar. He emphasized that the market’s future movement will be driven by fundamentals, making it essential to target the right sectors with appropriate valuations.
US Fed’s Rate Cut: Impact on Global Markets
Commenting on the global market environment, Sundar highlighted the recent move by the US Federal Reserve to cut interest rates by 0.50%. This has brought the rate range to 4.75-5%, marking the first reduction in interest rates by the Fed in four years. According to Sundar, this move was somewhat of a surprise but a necessary one to combat inflationary pressures.
“The rate cut by the Fed is a positive for global markets. It provides relief from the inflationary environment and opens up growth opportunities,” he added. This global trend may have ripple effects on India, where a rate cut is also anticipated in the near future.
Sectoral Focus: Auto and Pharma to Drive Future Growth
When asked which sectors show the most promise, Sundar expressed a bullish outlook on the auto and pharma industries. “The auto sector is seeing a lot of activity with several new launches. The market cap of the auto sector looks strong, and valuations are still within affordable ranges. With commodity prices stabilizing, we see this sector as a strong performer in the coming years,” he stated.
Pharma, another sector Sundar is optimistic about, offers a similar story. With affordable valuations and increasing demand for healthcare products, especially after the pandemic, the sector is positioned for long-term growth. Sundar also noted the importance of selective stock picking in these sectors, advising investors to focus on individual companies with strong fundamentals.
Mid and Small Cap Stocks: Good Growth but Expensive Valuations
The valuations of mid and small-cap companies have become a topic of concern. Sundar believes that while these stocks have shown impressive growth, their valuations have become quite high. “Mid and small-cap companies are doing well in terms of growth, but they are slightly expensive right now. Investors should be cautious while picking stocks in these segments, focusing on companies with strong earnings potential,” he advised.
Sundar suggests that while the mid and small-cap sectors offer opportunities, the high valuations might lead to profit booking in the short term. For long-term investors, however, these sectors still present potential for capturing significant gains.
Balanced Funds: A Stable Investment Option for Long-Term Investors
Sundar also discussed the role of balanced funds, which offer a mix of equity and debt to provide stability during market volatility. “Balanced funds are designed for investors seeking a mix of growth and safety. Typically, these funds allocate 20-80% of their total assets to equities, while the rest is invested in debt instruments. This balance helps protect portfolios during market downturns while allowing investors to benefit from equity market growth,” he explained.
For investors looking for a stable yet growth-oriented option, balanced funds can be a good choice for mid-to-long-term investment horizons. Sundar advises investors to check the equity-to-debt ratio of these funds and select one that aligns with their risk tolerance.
Interest Rate Cut in India: What to Expect
With inflation gradually coming under control in India, Sundar anticipates a potential rate cut by the Reserve Bank of India (RBI) shortly. However, he cautions that it’s difficult to predict exactly when this will happen. A reduction in interest rates could provide further growth opportunities for Indian markets, similar to the positive impact seen after the US Fed’s rate cut.
Sector-Specific View: Selective Banks Show Promise Amid Challenges
When discussing the banking sector, Sundar emphasized the need for a bank-specific approach. He explained that the banking sector faces challenges due to issues related to deposit growth. “Banks will grow when deposits grow. Right now, we are seeing a slowdown in growth, especially in personal loans. However, selective banks with better asset quality and controlled credit costs show promise,” Sundar remarked.
While the banking sector faces some hurdles, it remains an important part of any investment portfolio. Sundar advises investors to be selective in their bank stock choices, focusing on institutions with strong fundamentals.
IT Sector: Volatility with Long-Term Potential
The IT sector has experienced significant volatility in recent times, but Sundar remains optimistic about its long-term prospects. “There’s been a lot of ups and downs in the IT sector, but gradual growth is possible. Investors need to be patient as the sector stabilizes,” he noted.
With ongoing technological advancements and increased digital adoption, the IT sector is expected to recover and provide solid returns in the long run.
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