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Kotak Mutual Fund expects the next year to be a roller-coaster rider filled with market volatility and has advised investors not to leverage position in equity investment.
The fund house wants investors to spread their allocation across debt, equity, real estate and commodity and maintain a neutral allocation to equity. Investors should use fall in the market as an opportunity to allocate more to equity.
India an oasis
Nilesh Shah, Kotak Mahindra Asset Management Company, said, “In the global context India stands out like an oasis in the desert though there are concern such as the fall in manufacturing activity, trade deficit remain excessively high due to drop in exports and corporate earnings dipping in September quarter on back of high inflation.”
However, he said there are positive developments such as the Railways earnings rising 16 per cent, direct collection increasing 31 per cent and forex reserves crossing $550 billion after a long gap.
The US Fed had injected $4.8 trillion liquidity during the sub-prime crisis to the Covid crisis and has managed to withdraw only $400 billion so far through a series of rate hikes, said Shah.
Equity market impact
Despite four rate hikes by the Fed, domestic equity markets have risen and delivered almost four times more returns than MSCI emerging market between 2014 and 2022.
India has traded at a premium to emerging markets but right now the premium of Indian equities over other emerging markets is high at 139 per cent. This is partly because of the massive outperformance of Indian markets over emerging market peers. On the back of improved performance, India weightage in MSCI emerging market index has increased from 7 per cent in 2020 to 14.8 per cent last month.
While markets are near all-time high, the rally is not broad-based as only 5 per cent of Sensex stocks are at a lifetime high level, which means the rest of these stocks are still languishing at lower levels despite a rise in the Sensex.
In the near term, some investors may shift money to China on technical basis because of the very cheap valuation and potential opening up of Chinese economy in the longer term. Investors should stay overweight on large cap and marginally underweight on small-caps and mid-caps
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