By Sankaran NarenCalendar 2019 is likely to be an interesting year for investors, as market braces for near-term volatility owing major near-term event of general elections.
As on date, Indian equity market is fairly valued; it is neither cheap nor expensive.
More importantly, focus now is on individual stock picking, as plenty of opportunities are available at attractive valuations.
Several uplifting factors are keeping market upbeat.
To begin with, fall is crude oil prices has been a sentiment booster, as it has greatly reduced pressure on twin deficits - current account and fiscal.
Consequently, rupee turned around from 74 to dollar to 70 now.
Bond yields, too, are coming off, lowering interest burden on economy.
Above all, macro figures are once again showing signs of financial stability.
From a near- to medium-term perspective, equity market is likely to remain volatile.
This is because, historically election years have proved to be volatile for financial markets in general.
In past, across election years of 2004, 2009 and 2014, stock market has provided investors with intermittent opportunities to invest.
During such times, best investment strategy is to use systematic investment route to accumulate equities.
We believe 2019 too will be a year to systematically accumulate equities through SIP and STPs, keeping emotional biases at bay.
Such accumulation phase generally comes as a precursor to a bull run.
Thus, it is important to be patient and remain invested through this phase to make outsized gains in a likely market uptick, which ensues such a phase.
The most recent example of this phase was from 2010 to 2013.
During this period, stock markets were largely range-bound.
But for those investors who stayed invested, rewards came in years 2014 to 2017, when stock market entered bull phase.
Amidst all these, investors need to watchful of a few factors.
To begin with, US Feds stance on interest rates will be a factor to watch.
A meaningful rally in Indian equities is likely only when US Fed is done with its tightening.
Along with this, accumulation phase too is likely to come to an end.
Keeping in view this stance, we believe, current investing climate is conducive for investors to initiate or continue with systematic investment in equity assets such as smallcaps, midcaps and value funds.
For those looking for making lumpsum investments, balanced advantage funds and equity savings funds should be preferred vehicles.
Such fund categories have exposure to both equity and debt, and thus, provide a margin of safety if things get choppy.
In terms of themes, we are positive on special situations and those benefitting from volatility.
In debt, dynamic duration schemes which can benefit from volatility, low duration funds that tend to mitigate interest rate volatility (investing in instruments with maturity in range of 1-3 years) along with accrual schemes, which can capture current elevated yields, are categories we are positive on.
Look, what 2019 may hold for you!(Sankaran Naren is CIO at ICICI Prudential Mutual Fund.
Views are his own)