Blitz Bureau
NEW DELHI: The current market turbulence provides saner entry points for long-term investors, a new report said on March 10, adding that the mid to long-term story for Indian equities continues to hinge on earnings upcycle. “On earnings, while we are navigating a near term slowdown, the medium-term trends stay encouraging. India’s corporate profits as a proportion of GDP have reverted higher over the past 4 years after secularly declining for 12 years between 2008-2020,” according to the report by the SBI Funds Management Limited.
“Sectorally, we have stayed constructive on discretionary consumption as a secular theme given the disproportionate boost the category derives from rising incomes as India’s GDP approaches US$3,000 per capita,” it mentioned.
The thrust in the Union Budget through lower taxes comes as a tailwind for this sector. On the other hand, “we also stay positive on manufacturing and investment cycle related plays from a longer-term standpoint and believe the recent correction may present interesting opportunities in some of these names,” the SBI report said.
As the current panic subsides, the report believes markets will become more discerning and move back towards companies which have strong business models, long-term earnings growth visibility and sustainable cashflows.
Now that the RBI has initiated the policy rate easing cycle, given the view that the space currently is limited, the emerging issue to be tackled would be the dynamics of liquidity. “This would be an ongoing process and should have a material impact on the shape of the curve as well as on spreads going forward,” said the report.
While rate easing remains a theme that still warrants portfolio duration to stay around the upper bands, it must be appreciated that market dynamics could limit the extent of incremental gains.
“At the same time, current dynamics in market yields, provides opportunities that enable a more relative value with lower risk that can be played through specific funds. This should also align with investor preferences in terms of risk tolerance and tenors,” said the report.
