Viraj Gandhi, CEO, Samco Mutual Fund, anticipates that the market will remain jittery and highly reactive to news until the conclusion of elections. Some political analysts even predict a stagnation in the ruling party's seat tally compared to the previous elections, which has aided the negative sentiment. Any deviation from the projected poll results or seat count could dampen market breadth, particularly in volatile times, he added. Amid the elections, Gandhi prefers sectors like manufacturing, infrastructure, emerging technologies like waste and water management, EV, hydro, and solar.
Edited Excerpts.
Indian stock indices have experienced some turbulence, with potential factors including significant selling by FIIs in emerging market equities, amounting to around $2 billion in April and May alone. This selling spree appears to be largely influenced by rising US yields. Additionally, there is speculation surrounding the upcoming elections, with discussions suggesting that the ruling party may not see a significant improvement in their seat count compared to the 2019 elections. Some political analysts even predict a stagnation in the ruling party's seat tally compared to the previous elections. Given the momentum in the markets, such news has created negative sentiment, resulting in a mild correction in the bourses. It's anticipated that the markets will remain jittery and highly reactive to news until the conclusion of the elections. Hence, it's imperative for investors to exercise caution and make informed investment decisions during this period.
Market momentum has been robust and valuations have outpaced earnings significantly. The anticipated rate cut by the Fed, originally expected mid-year, has been postponed. Consequently, the Indian Monetary Policy Committee (MPC) might maintain status quo in interest rates. In this environment, earnings growth may not meet expectations, especially with high interest rates. It's prudent to pause and seek value opportunities with a strong margin of safety.
The current government's emphasis on manufacturing and self-reliance is likely to drive the sector in the coming months. Companies with significant export exposure should be considered. Additionally, investments in infrastructure, emerging technologies like waste and water management, EV, hydro, and solar align with the government's focus to boost India's GDP, offering potential investment opportunities.
Any deviation from the projected poll results or seat count could dampen market breadth, particularly in volatile times. While benchmark indices may rise on certain days, divergent volumes and open interest indicate potential cracks in the strength of the rally.
Gold has shown strong performance since October, rallying over 30 percent from lows to highs last month. However, entering aggressively at these elevated levels may pose challenges. It's advisable to consider starting exposure on declines for portfolio diversification, but averaging out over the long term is prudent as these levels may not be sustainable.
Consider avoiding sectors like IT and financial services for now. IT faces pressure due to tightening US yields and slow order implementation, while financial services are under scrutiny by regulators for curtailing unsecured lending.
Opportunities remain in the mid and small-cap sectors with potential for growth. Choosing the right companies is crucial. A flexicap approach, based on the businesses you hold, can help balance the portfolio effectively.
Liquidity has already been sucked out of the system due to the large number of QIPs, IPOs, etc. that we saw in the market during the past year. Hence, it seems likely that for the next few months, it will remain subdued.
In India, FPIs have been investing in primary markets but withdrawing from the secondary markets. In FY25, YTD, FPIs have injected $1.7 billion into primary markets while pulling out $3.6 billion from secondary markets. This trend isn't unique to India; globally, emerging market equities, excluding China, saw outflows of around $8 billion in April, with India witnessing outflows of $1.3 billion. This trend is attributed to the tightening of US yields. If US yields continue to tighten post elections, FPIs may prolong their selling activity.
New investors (particularly those who have entered markets post COVID) may not have encountered market corrections before. Market movements follow cycles, and a misstep during a correction could result in significant losses for new investors. Therefore, it's crucial to conduct thorough due diligence and practice effective risk management before making any investment decisions. Rushed or speculative investment choices could have severe consequences.
In sideways or correcting markets, fund houses often pivot towards special opportunities investing. During these phases, when equities lack momentum, mergers, spin-offs, and other corporate actions offer attractive prospects for substantial returns. A prime example is Mr. Warren Buffett, who effectively utilised special situation investing during his tenure managing Buffett Partnership Ltd, achieving an impressive 31.6% CAGR and outperforming the Dow by over 20% annually. While many thrive in bullish markets, it's the ability to identify and capitalise on special opportunities in correcting or mean-reverting markets that truly distinguishes successful investors.
Samco Special Opportunities Fund stands out for its innovative approach, utilising a proprietary DISRUPTION Model to pinpoint investment opportunities. This model comprises 10 distinct sub-strategies, each tailored to uncover special situations across different sectors and themes. By employing this systematic approach, the fund can generate a wide array of investment ideas, capitalising on disruption and special situations to pursue growth and value for investors.
Moreover, the model provides strategic flexibility, enabling the fund to adapt to evolving market trends and potentially thrive in dynamic conditions. With its focus on diversification and potential tax advantages, the fund offers unique benefits for investors seeking diversified exposure and growth opportunities across various sectors.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
