After lifetime highs in November, what’s next for equities?

6 Dec 2022

November saw the Nifty 50 and Sensex hitting lifetime highs led by a surge in foreign inflows, rising more than 3% each month*.

Lower-than-expected inflation data in the US has led to hopes that both inflation and interest rates in the country have peaked out, which could lead to the US Federal Reserve pivoting sometime next year, said Pankaj Tibrewal, fund manager for equities at Kotak Mahindra Mutual Fund.

“While the global equity and bond markets are in deep red this calendar year-to-date, India equity markets continue to stage a very strong relative performance,” he said while discussing the outlook for December.

Global growth is likely to remain challenging next year, which could be a concern for equities in India.

Another factor would be commentary from India Inc., after the recently concluded earnings of the September quarter.

The cash flow of companies within the Nifty 500 index contracted after almost two and a half years because of a deterioration in working capital. Cash flows are important for earnings growth.

The profitability or operating margins of companies was also at an eight-quarter low, primarily because of an increase in the prices of commodities, making the overall quarter a subdued one in terms of earnings and cash flows, Tibrewal said.

“While we have a positive view on Indian equities from a medium-term perspective, the valuations at current levels, after the recent gains, warrant some caution as there could be limited headroom for substantial gains from here on,” he said.

Markets could see heightened volatility, and amid these circumstances, investors should have a portfolio with a good mix of large-cap companies and secular growth companies in the mid and small-cap space.

“A bottom-up portfolio strategy with a focus on companies with leadership, low leverage, high cash flows, growth surprises ahead and reasonable valuations would be ideal strategy for superior risk-adjusted returns in 2023,” he said.

Investors should continue to remain disciplined in terms of asset allocation as they focus on their long-term goals, he said.

 

 


 

*Data as on Nov 30, 2022

This article is for information purposes only. The information provided herein is derived from public sources, believed to be from reliable sources. However, no representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. Kotak Mahindra Mutual Fund/ Kotak AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in future. Readers should seek professional advice before taking any investment related decisions and alone shall be responsible for any decision taken.

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© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.