The Hindu Business Line : Market View

The earnings season along with the latest economic data suggest the RBI's efforts to ensure price stability without hampering growth prospects appear to be bearing fruit. Corporate India is benefiting from the buoyant domestic and overseas demand. While the sharp rise in rupee does impact export-oriented companies, our interactions with leading companies indicate that the short-term effect will be on the lower side due to hedging. The widening trade deficit and high oil prices might pull down the rupee over the medium term. If there is any further sharp rise in commodity prices including oil, input cost pressures on margins could increase. Corporate India has witnessed sharp productivity improvement in recent years and this along with demand buoyancy could help select companies offset higher costs through volume increases. Buoyancy in capital and consumer spending could result in better pricing power, enabling pass-through of higher costs. Even as domestic borrowing costs have been rising, we believe that buoyant equity market along with relatively lower overseas interest rates should help Indian companies in mitigating the impact.

Franklin Templeton Investments

The bull-run in the past four years has captured the under valuation of equities, which has resulted in exponential gains during this period. There have been apprehensions about valuations running ahead of fundamentals, but that does not mean that the up-cycle has fizzled out. With the market fairly valued currently, investors need to moderate their expectations. Long term, we believe the up trend may continue given the prospects of corporates delivering above average earnings. Hence, the premium valuations are not completely out of place. With the results season over, the market may be range-bound in the near term as it seeks to consolidate its gains, assess the impact of interest rate hikes on future profit growth. Fresh supply of Rs 30,000 crore in the equity market through the IPOs of DLF and ICICI Bank could dampen the market, as it will take time to absorb this huge supply. The unfolding of the monsoon scenario could also impact the market momentum. Having said that, analysts reckon that with the inflation coming off to around 5 per cent levels, the pressure on RBI seems to have eased considerably. The market has so far shrugged off the fears of the ripple effect of Chinese market slump in the region. However, considering the extent of integration of global markets, volatility on account of unforeseen global events cannot be ruled out. Therefore, our recommendation to investors is as follows;

In a fair value market, maintain a neutral allocation towards equities.

Do not try to time the market, as the high short-term volatility cannot be ruled out.

Asset allocation and Systematic Investment Plans are the best way to safeguard against volatility. They ensure optimal returns and not the maximum return in volatile markets.

Investors should look at a mix of large and mid cap funds for 3-5 years horizon on systematic investment basis.

ICICI Prudential Mutual

More Stories on : Mutual Funds | Outlook | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page