Research

Mutual Fund Review - November, 2021 - ICICI Direct



Posted On : 2021-11-26 21:49:00( TIMEZONE : IST )

Equity Market Outlook

  • The recent correction was overdue and should be construed as healthy in the overall larger uptrend. Historically, markets have seen correction of 10-15% almost every year. It is difficult and actually a futile exercise to predict whether the market will correct further or will recover from current levels itself. In general, a 5% correction is a good enough "dip" to follow the time and tested "buy on dips" allocation strategy.
  • Corporate earnings, which is the ultimate barometer of the market performance, remain on track for a sharp recovery. The recent quarterly results (ex-financials) for June-September 2021 was encouraging with both topline (up 10.8% QoQ) and bottomline (up 12.5% QoQ) witnessing double digit sequential growth. This was amid state specific unlocking, decline in Covid incidence pan-India, increased pace of vaccination and consequent pick-up in economic activity. The performance on a YoY basis looks rather robust (sales, PAT up 34%, 41% YoY, respectively) despite element of pent up demand in the base quarter primarily tracking higher commodity prices in the oil & gas and metals domain

Debt Market Outlook
  • RBI has started to reduce the surplus liquidity in a measured manner through variable rate reverse repos and reduced OMOs. In its continued effort to normalise liquidity, MPC may resort to hike in reverse repo rate in its December monetary policy meeting. The expectation of the same may keep short term rates under pressure
  • The yields on longer duration papers in general remained stable with benchmark 10-year G-Sec yield range bound around 6.35% levels.
  • In its calibrated approach towards flattening the yield curve and absorb surplus liquidity, RBI in its recent policy meeting announced higher liquidity absorption through its variable rate reverse repo (VRRR) auctions as liquidity remained well in surplus. It announced it would absorb liquidity in a bid to normalise extreme surplus liquidity stance. Accordingly, short term yield moved up in last few months. The yield movement however remain well behaved with very little impact on market sentiments
  • The inflation concern is increasing with the widespread rise in most input prices. Many consumer-focused companies have started rising prices of their final consumer products. Although the growth focus of RBI is unlikely to change, debt market likely to trade with caution.
  • The bond market continues to be in a wait and watch mode with few domestic mutual fund managers raising cash levels in their actively managed debt funds.
  • The yield of the AAA-rated corporates has fallen significantly and is trading at extremely lower levels. With the gross YTM of corporate bond funds around 5.5%, the attractiveness reduces significantly

For details, click on the link below: Link to the report

Source : Equity Bulls

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ICICIDirect MufualFundReview November2021