Mutual Fund Review - September, 2020 - ICICI Securities

Equity market outlook

- Indian equity markets have witnessed a remarkable rally from the March 2020 lows against all expectations on the back of global equity market rally. While global markets remain supportive of the sharp recovery, Indian markets outperformed their global peers. The year 2020 has so far been a tale of two halves with the first half in February and March witnessing a sharp unprecedented fall while the second half since then witnessed a sharp recovery

- Both the ~40% fall in headline indices and ~40% recovery from the lows was unanticipated and took most market participants by surprise. While volatility in the market is a known fact, many investors time and again get swayed by the noise around them and forget the basic principle of investing more during a fall and not shying away from it. Investors who followed the basic principle of systematic accumulation at every market level again stand vindicated

- Going forward, markets are likely to undergo a healthy consolidation in the near term post a sharp recovery. The near correction in the range of 10-15%, particularly in midcap and small cap, should not be construed as negative. Our overall outlook on the market remains constructive with a buy on dips investment strategy

- While headline indices may have recovered majority of their losses, the broader markets are still far away from their peaks. Many individual stocks still offer a good accumulation opportunity if the investment horizon is more than two to three years

Debt market outlook

- Indian debt markets in the last two years have witnessed a good rally with most funds having clean portfolios with no credit risk event delivering annualised return in the range of 10-11%. Funds with higher duration delivered even higher returns as long bond yields, particularly G-Sec yields, delivered higher capital gains as yields decline on consistent rate cuts by the Reserve Bank of India (RBI)

- RBI has said that the scope for further rate cut remains and will be used judiciously to have higher impact. In a way, this indicates that the scope for significant rate cuts remain low and the focus would remain on ensuring surplus liquidity

- As the monetary policy stance remains accommodative, RBI will continue to provide more than adequate liquidity and continue its focus on transmission of rates. The major focus for the RBI now is on transmission of rates. Hence, it could continue to use all tools possible to keep yields lower

- The yield for quality bond portfolios like corporate bond funds is trading at cyclical lows. Therefore, the return expectation should be lowered. Selective funds in the medium term category offering higher yield with measured exposure to sub-AAA rated papers are better placed for long term debt allocation

Gold outlook

- Gold prices in the last two years have had a phenomenal run, rising around 75% and continuing to scale new highs. Indian prices are trading well above Rs. 50000 per 10 gram. In the current era of Covid-19 where there is heightened uncertainty and concerns around global growth, human lives, there was bound to be some interest in safe haven assets like US government bonds and gold. However, the extent and intensity of the rally in global gold prices has taken everyone by surprise

- We maintain our positive outlook on gold prices given uncertain outlook on global growth, volatility in other asset classes, viz. global equity, commodity and currency markets, massive stimulus measures announced by major central bankers, extremely low interest rates environment & outlook

- For Indian investors, gold has been an effective asset class from a diversification perspective as apart from global price movement, rupee depreciation has helped it deliver better returns. Holding some portion of the portfolio in gold provides effective diversification

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_MonthlyMFReport_Sep20.pdf

Source : Equity Bulls

Keywords