Hello Readers!!
Last year in March when COVID cases got surged, the Indian government announced a complete nation lockdown that long lasted for around four months. The national lockdown showed its effects on the Indian economy and the equity market collapsed.
But to everyone’s surprise, in the second wave of COVID pandemic that we are battling with currently, Indian equity markets are holding strong. Nifty is holding up at around the 15,000-mark, markets are rotating from one sector to another.
Let us see what experts have to say about this and what winning strategy they have to share with Equity Mutual Fund Investors!
Has the second wave of COVID challenged the stock-picking strategy of Fund Managers?
Last year, after the market collapsed in initial national lockdown days, Nifty started to recover in the last trimester of the year and moved up steadily from 7,500 to the 15,000 marks. As soon as the risk level started to decline, equity started to recover and climbed up.
In the second wave of COVID, the lockdown has been imposed but this time, the decision has been taken by the state government and not the central government. Thus, lockdown rules and protocols vary from state to state.
In this second wave of COVID, what has become a challenge for a fund manager is frequently switch from one sector to another. Currently, within the NIFTY, the smaller constituents like commodity stocks are moving up fast, while the large stocks are all motionless. But despite these trends in the market, fund managers have not been able to do the heavy lifting of NIFTY this time.
Although, fund houses are trying to maintain a balance in their strategy and looking to ensure that the portfolio managed by them has a good mix of all the sectors. The fund manager said that last year when the market started recovering the rally, was led by the B2C (business-to-consumer), this time they are expecting it would be B2B companies (business to business).
Any Sharp Earning Downgrades Due To Second COVID Wave?
Experts say that it is waste of time to forecast earning, as may in the future, we would be seeing a change in the composition of earning. Currently, the commodities stocks and oil-marketing companies are on a good uptrend after a good time, probably there would be incremental earning from these sectors. Investors might receive disappointment from sectors like FMCG companies, retails, and banks.
They further say GDP growth which was estimated at around 12 percent has come down to about 10-10.5 percent, and with this, we are shaving off some earning growth.
Regarding the growth in NIFTY, experts say that in January 2021, NIFTY earning growth was estimated around 22-24 percent, however seeing the current situation, they might fall to 20 percent. This time we might receive a good earning growth from sectors such as metals, which may compensate for the shortfall in earnings from other sectors. This is expected because in the coming days the vaccine drive will be accelerated, leading to around vaccinating 70% of India’s population with at least the first dose by the first quarter of the calendar year 2022.
Possible Wining Equity Strategies!
Experts say, risk-adjusted returns are important, simply we cannot afford to take risk beyond our risk profile. Thus, diversifying one’s portfolio is much important. This time experts suggest diversifying your portfolio into three parts.
The first part will act as your backbone, which means you would be investing your first part in companies that are not fanciful, but stable. Your second part would be growth-oriented and thus it will be allocated to mid-sized companies. Their business models are established and they could be market leaders as well.
And your last part will be a bit risk associated, which means this part would be allocated in new emerging themes or disruptive businesses. Here the risk will be high to generate higher returns.
What Should Be The Allocation Ratio?
Experts say, if you want to participate in the equity market via mutual funds then the ideal allocation ratio that one must follow is a 60 percent allocation to mid and small-caps and the balance to large-caps. No doubt this allocation could also vary as per the risk profile of the investors or changing trends in the equity markets.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).