CY2017 begins after a chain of events that has changed the investment landscape for Indian investors. It is better to take an informed decision than just chasing winners in the past.
Dec 16, 2016, 04.25 PM | Source: Moneycontrol.com | Nikhil Walavalkar
Uncertainty remained the buzzword for most investors throughout CY2016. Issues such as Brexit, presidential elections in USA, interest rate decision by US Federal Reserve along with OPEC’s changing stance on crude oil production ensured that the global investment climate remained volatile. The demonetization decision by the Indian government added some local flavor to the uncertain investment environment.
“Barring the rate hike decision by US Federal Reserve, CY2016 has seen many events worldwide unfolding contrary to what was expected,” says Ashish Shanker, head- investment advisory, Motilal Oswal Wealth Management Services. “These black swan events, including demonetisation have led to a lot of disruption caused to investments. In CY2017 investors have to focus on opportunities keeping in mind this changed environment, than just chasing winners in the past.”
Equity has given tepid returns in last one year. Benchmark CNX Nifty has given 2.38% returns in CY2016. The numbers for the large cap funds and the midcap funds as category for the same time frame stand at 4.34% and 6.02%, respectively. Though mid cap and small cap funds have been flavor of the season and have ruled the performance charts for last two years, it is the time to revisit your allocation.
“Large cap funds should do well in CY2017 given the relatively attractive valuations of large cap stocks. Though mid and small cap funds have done well over last two years, it makes more sense to avoid fresh bets on them now due to their swollen sizes and the possibility of mid and small sized companies getting hit more due to demonetization as compared with their larger counterparts,” advises Ashish Shanker.
Most investment experts have been advising investing in stocks either through systematic investment plans or on dips given the fair valuations Indian stocks enjoy. Though the diversified equity funds always form the core part of aggressive investors’ portfolios, savvy investors prefer to take some extra risk in search of higher returns through sector funds.
Infrastructure is one such theme experts are bullish about. Investors have not seen much action after the initial bull-run went bust in 2008. However, last two years have seen changes in the government policies and the scenario has improved due to increased government support. “Infrastructure spending should go up in India which should benefit companies in infrastructure space,” says Feroze Azeez, deputy CEO – private wealth management, Anand Rathi Financial Services. He recommends investing in ICICI Pru Infrastructure Fund and DSP Blackrock TIGER Fund. “Infrastructure sector is beaten down and it offers a good opportunity to invest. Correction in market can be used to invest in this space. Invest if the NAV of the funds you want to invest fall by 10% from current levels,” he advises.
Rupesh Bhansali, head of mutual funds at GEPL Capital says, “Demonetisation has ensured that the banks have high levels of CASA. This situation should continue for at least couple of quarters. Focus on digital payments and cashless economy should benefit banks.” Government has invested capital in public sector banks and banks too are going after non-performing assets. Interest rates are on their way down which should revive private sector’s capital expenditure. This should ensure that banks make a strong come back. Bhansali recommends investing in Birla Sunlife Banking and Financial Services Fund.
Feroze Azeez is optimist about the fortunes of banking sector and recommends investing in Reliance Banking Fund.
Pharmaceuticals and healthcare is one more sector that is back on investor’s radar. Pharma and healthcare funds as a category has lost 4.3% in the last one year. If you have been holding these funds for last two years, you have earned 3.5% returns. “Pharma sector has been under pressure for last two years and is attractively valued,” says Ashish Shanker. Over last two years regulatory issues cropped up for Indian pharma companies in USA. Some companies have faced temporary bans and some were forced to withdraw products. Market has taken note of these developments and punished the companies, which is evident in the price erosion these stocks have seen. However, the companies too have taken right steps to take corrective measures and brought in changes in their business to comply with the norms.
“On the one hand there are pharma companies that have taken corrective steps and can do the same amount of business worldwide quoting at much lower prices compared to a year ago and on the other hand there are new investment opportunities by ways of new entrants in the listed space by way of recent IPOs that make pharma funds an investment opportunity worth exploring,” explains Rupesh Bhansali. He likes Reliance Pharma Fund and SBI Pharma Fund.
Information Technology is another sector many savvy investors prefer to invest into. However, most investment experts prefer to wait for the clarity on visa issues before taking any fresh bets on this sector.
Sector funds though offer an opportunity to make some extra return they face concentration risk. “On an average sector funds are 1.5 times riskier than the average diversified equity funds. To make money in sector funds, you have to get both – your entry as well as your exit right,” warns Feroze Azeez. If you are not one of those who can keep a track of sectors and markets, it is better to go with diversified equity funds with long term track record.