Synopsis
The latest SBI report highlights that the current market turbulence creates better entry points for long-term investors, emphasizing the importance of an earnings upcycle for Indian equities. It also suggests opportunities in sectors like discretionary consumption and manufacturing.Key Takeaways
- Market volatility provides better entry points.
- Focus on long-term earnings growth.
- Lower taxes in the Union Budget benefit specific sectors.
- Short tenor bond funds offer a strong risk/reward profile.
- Hybrid products gain relevance amid equity market fluctuations.
New Delhi, March 10 (NationPress) The ongoing market volatility presents more favorable entry points for long-term investors, according to a recent report released on Monday. It further emphasized that the mid to long-term trajectory for Indian equities remains dependent on an earnings upcycle.
"In terms of earnings, while we are currently facing a short-term slowdown, the medium-term outlook is still positive. Over the past four years, India’s corporate profits as a percentage of GDP have increased after a prolonged decline lasting 12 years from 2008 to 2020,” the report from SBI Funds Management Limited states.
“Sector-wise, we maintain a constructive outlook on discretionary consumption as a consistent theme, due to the significant boost this sector receives from rising incomes as India’s GDP approaches US$3,000 per capita," it added.
The Union Budget's emphasis on lower taxes serves as a beneficial factor for this sector. Conversely, “we also hold a positive view on manufacturing and investment-related opportunities from a long-term perspective, believing the recent market correction may offer compelling prospects in some of these areas,” the SBI report indicated.
As the current state of panic diminishes, the report anticipates that markets will become more discerning and gravitate towards companies with robust business models, sustained earnings growth potential, and reliable cash flows.
With the RBI initiating a cycle of policy rate easing, the emerging challenge to address will be the liquidity dynamics at play.
“This will be an ongoing process that should significantly influence the shape of the curve as well as spreads in the future,” the report stated.
While the theme of rate easing justifies maintaining portfolio duration at the higher end, it’s important to recognize that market dynamics might restrict the scope for additional gains.
“At the same time, the prevailing market yield environment presents opportunities that allow for a more relative value approach with lower risk, which can be pursued through specific funds. This should also resonate with investors' risk tolerance and tenors,” the report expressed.
Short tenor bond funds continue to offer higher accrual rates, broader spreads, and an optimal risk/reward profile, presenting opportunities in the coming months and into the next year.
Typical seasonal factors for the March quarter are expected to play out, normalizing with the start of the next fiscal year. This also creates attractive opportunities in the near term across all categories of money market products.
“The fluctuations of equity market volatility render hybrid products particularly relevant in the current market scenario,” the report noted.
