Equities could remain volatile – what should you do?

The month of October has been volatile for equities, even though benchmark indices ended higher during the month.

Globally, both inflation and higher interest rates seem to be sticky in the developed world.

“With inflation in the US now being driven more by services, it is possible that the Fed would continue on their monetary policy tightening path,” said Shibani Kurian, fund manager for equities at Kotak Mahindra Mutual Fund.

In a scenario like this, the key to watch out for would be the trajectory of US wage growth and the labour market, especially while there is uncertainty about growth in developed geographies like the US and Europe, she said, while discussing the outlook for November.

“Geopolitical tensions remain the other key risk to monitor,” she said.

While there have been some downgrades to India’s GDP growth projections in FY23, India’s overall economic growth is doing well, as indicated by some high-frequency indicators like data on cars, houses, spending through credit cards and GST collections.

One macro factor, though, that needs to be kept a watch on is the external sector and the current account deficit.

“With forex reserves now at ~9 months of imports and with oil prices and CAD remaining elevated, we expect the near-term depreciating bias of INR/USD to continue,” Shibani said.

While some volatility is likely in the near term, the outlook for growth in India is stable, and hence, equities too, are likely to do well in the medium term.

Investors can focus on high-growth and high-quality companies which are trading at reasonable valuations, while they continue to follow a disciplined approach to equity investments.

 

 

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