In conversation with Yogesh Patil CIO (Equity), LIC Mutual Fund Asset Management Ltd.

Mutual Fund Investors Seem To Have Become More Matured

"Mutual Fund Investors Seem To Have Become More Matured"
 

With high levels of inflation expected to persist in the near future along with more potential rate hikes, what is your outlook on the Indian equity markets in the short to medium term?
 

The markets are generally forward looking and these issues of high inflation and rising interest rates have been hitting the headlines for the last one year. The impact of inflation and rising interest rates has been reflected in corporate profitability for the last two quarters. A large part of the rate hikes, both globally and locally, seem to be behind us and we may be entering into the fag end of the rate hike cycle. We believe that going forward these risks may gradually recede and large companies having strong pricing power may emerge stronger from this crisis.
 

As far as the performance of the Indian equity markets is concerned, the markets are trying to navigate these headwinds for the last one and a half years.
 

They have been in a consolidation mode despite the corporates reporting decent earnings. Over the short term there may be some more consolidation as the markets may try to gauge the extent of the remaining rate hikes, but over a medium term, we believe, the equity markets seem to have discounted these headwinds to a large extent and should do well. High interest rates tend to act as a drag on valuation multiples and so the key is not to overpay for any business in this environment. Investors should weigh the earnings growth prospects in relation to the prevailing valuations before taking investment decisions.
 

What is your take on the Union Budget 2023-24? Which sectors, according to you, are well-placed for 2023?
 

The Union Budget 2023-24, in our view, was pragmatic and the government refrained from being populist in spite of this being their last full budget before the upcoming elections. The focus is on reining in revenue expenditure and enhancing capital investments, which is in the long term interest of the country. A dip in global commodity prices has also helped in rationalising food and fertiliser subsidies. From an equity market perspective, stability in capital gain taxation regime is also positive. Regarding sector outlook, sectors having good earning visibility like BFSI, IT, manufacturing and chemical look good.
 

In your view, how has the Q3FY23 earnings season fared?
 

Q3FY23 earnings season was a mixed bag. On an aggregate basis, Nifty 50 earnings grew by 11 per cent YoY while global cyclicals like metals, oil and gas, etc. dragged earnings. The BFSI, automotive and IT sectors did well. Lot of consumerfacing companies faced margin headwinds as the extent of price hikes was not able to nullify the cost pressures. High inflation also seemed to have impacted the demand for low-priced consumer discretionary items as consumers hit by high inflation rationalised their discretionary spends.
 

What are the emerging trends you are witnessing among mutual fund investors? Also, how should retail investors navigate the current market volatility with mutual funds?
 

Mutual fund investors seem to have become more matured, which is being reflected in healthy and consistent SIP flows. Mutual fund investors are also more informed these days thanks to investor education and the availability of information at the click of a button. History has proven that investing through a crisis when the equity markets have gone through a correction has predominantly proven a wise investment strategy and hence investors may continue to allocate money to the equity markets, albeit preferably through the SIP route.
 

Over the span of your career thus far, what have been your key learnings from the equity markets?
 

One of the key learnings has been that everything moves in cycles and it is very important to have proper asset allocation strategy to navigate these cycles. For investors, in general, it’s very difficult to time the markets and so the key is to remain invested and diversify across asset classes to generate returns in line with one’s long-term financial goals. Investors may consult their financial advisors before taking any investment decisions.