Vinod Karki, head—strategy, ICICI Securities, said the market is likely to remain positive but a significant upside is unlikely due to high valuations. Indian shares witnessed a record run in last one month on the back of a historic mandate won by the Narendra Modi-led Bharatiya Janata Party and hopes of more measures by the Reserve Bank of India to boost the economy and ease the liquidity crisis. Indian benchmark indices BSE Sensex advanced 1.5 percent in May, while NSE’s Nifty 50 rose 1.8 percent. Both the indices edged up 0.5 percent and 0.3 percent so far this month, respectively.

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Karki further added that the ongoing consumption slowdown, government’s capex proposals in the upcoming Budget and geopolitical events, including oil prices, are expected to weigh on the markets in the near terms. Read below Karki’s outlook on the stock market and what investors should watch out for:

What is your outlook on the markets in the near-term post-elections?

We expect markets to remain positive in the near term given the optimism. However, we do not expect significant upsides as valuations are at peak levels.

Analysts expect more rate cuts by the RBI this year, what is your viewpoint on this? Do you agree?

The larger issue before embarking on a significant rate cut would be to ensure adequate liquidity in the system which will allow transmission of earlier rate cuts. Having said that we do agree with the view that rates have to come down to a larger extent for the borrowers in the Industry to benefit.

What are the key factors that will impact markets in the near term?

Some key factors which will weigh on the market are:

The extent of the consumption slowdown in the economy—is it transient or long lasting?

The trend in capex spends in the economy

Global demand scenario and geopolitical risks

Oil price volatility

At the moment, which sectors are looking beaten down? And, where can one find value?

Oil & gas and utilities offer relatively cheaper valuations, while the outlook will improve on policy reforms from the government

What factors do you look at before investing in stocks?

Attractive long term size of the market in which the stock operates, the competence of the management, balance sheet strength and prudent capital allocation decisions

Should investors invest more in mutual funds or stop investing considering the high momentum in the markets right now?

It is very difficult to time the market and hence Investors should continue to invest irrespective of the market momentum. Having said that, as a general rule it is more rewarding to invest when markets are down than when they are at all-time high levels. So investors should allocate more when markets are down than when they are up. Typically they end up doing the opposite.

Are ETFs better than the mutual funds?

ETFs have the distinct advantage of being low cost and they closely mimic the benchmark without the risk of errors in judgement on the part of the money manager. However professional money managers with their unique style of investing have often outperformed the benchmarks. So depending on the calibre of the money manager mutual funds could be a better bet than ETFs.

Will the mutual fund industry growth improve if stress from the NBFC sector recedes?

Yes. NBFC stress is a transient issue while the mutual fund industry will continue to grow ahead of the GDP growth of the economy given the low penetration levels.

First Published:Jun 10, 2019 10:37 AM IST