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
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