The longer-term vision for India's macro remains positive with gradual progression toward a $6 trillion economy over the course of this decade, a report by domestic brokerage house Motilal Oswal said.
The domestic equity market fundamentals will remain robust given healthy balance sheets, low debt-equity and improving return on equity (RoEs) leading to a steady earnings growth outlook, it added.
Nifty50 ended FY22 with gains of 19 percent YoY, marking another year of strong returns despite the multitude of challenges. Lockdowns due to the second COVID wave, relentless FII outflows, the surge in commodity prices, disruption in supply chains, and weak rural demand were some of the challenges faced by the Indian economy during the last financial year.
The fact that the Nifty is down barely 5 percent from its recent high underscores its resilience. Markets never fail to astonish and what has been a pleasant development is the rise of DIIs investing in equities to the tune of over $26 billion in FY22 countering the outflows by FIIs ($17.1 billion), added the report.
According to Ashish Shanker, MD& CEO, Motilal Oswal Private Wealth, “We anticipate higher than usual volatility in the short term as market sentiment is likely to be influenced by the increased geopolitical risks in the backdrop of ongoing Russia-Ukraine conflict, higher inflation/ commodity prices, rate hikes by Global Central Banks."
Shankar added, "In these uncertain times, the actions of the government and the central banks will be closely tracked for the next few quarters. Corporate earnings and commentaries will set the tone for markets as they will be monitored for margin compression on high input costs. We reiterate emphasis on Investment Charter, Asset Allocation, and a disciplined staggered deployment strategy for incremental equity investments. Our stance on this being a year of consolidation still holds.”
The report noted that Banking, Financial Services, and Insurance sector (BFSI) and Information Technology (IT) companies have been somewhat immune to the geopolitical crisis and could continue to do well. Meanwhile, metals and mining companies have benefitted on the back of an unyielding rise in commodity prices while the same has had a negative impact on consumption-driven companies.
It added that autos, consumer staples and cement could see a decline in margins due to rising commodity costs in March quarter results while upstream Oil & Gas, as well as Metals, could see a sharp uptick during the same period.
"Almost half of the Nifty50 companies would not have any direct impact of rising energy prices on its last quarterly results while 29 percent will have a positive impact and 18 percent would gain from rupee depreciation," the report stated.
As per the brokerage, the strategy for equity in the current scenario should be to invest 50 percent in a lump sum and 50 percent in a staggered manner over the next 3 months in Multicap strategies and select Mid & Small Cap strategies (MFs, PMS, AIF) to achieve strategic equity allocation.
Meanwhile, around 70-80 percent of the Fixed Income portfolio should be biased towards high-quality short to medium-term accrual strategies with a minimum investment horizon of 3 years, MOSL suggested.
It added that within the above allocation, 20-30 percent can be allocated towards long maturity and high quality roll down strategies with a minimum investment horizon of 5 years.