After a poor show in the first ten months of 2022, the equity markets finally look like they may have year-end cheer for investors says DSP Mutual Fund in its monthly report Netra which tracks the latest economic trends and insights.
The November issue of DSP Mutual Fund’s Netra mentions that factors like central banks expected to moderate interest rate hikes in the future, easing of supply-chain costs, squeezing of systemic liquidity and fall in natural gas prices along with a possible return of FII buying may ease volatile equity markets in the near future.
Already, global container shipping rates, one of the biggest sources of supply side inflation, are down 67% from their peak of last year and are approaching precovid levels. The freight rates for container ships is now down 68% to $1,486 per container. With inflation under control the pressure on the RBI to hike interest rates would reduce. If this interest rate hike cycle is shorter, then Nifty valuations could remain higher than in the past, adds DSP Mutual Fund.
Less volatile markets will create more opportunities for active stock picking. Even in the first ten months of this calendar year; while the Nifty index itself rose less than 5%, the Nifty Bank index rose almost 17.5% over the same period. “The equity market seems poised to move up in line with its long term secular trend, as FIIs seem less bearish on Indian equities, valuations as evidenced by the price earnings ratio have become more attractive and Indian investors continue regular investments in equity mutual funds via SIPs,” said Sahil Kapoor, market strategist and head of products at DSP Mutual Fund.
DSP Mutual Fund believes that the banking sector still offers attractive potential for appreciation. Banks now have much less dud loans on their balance sheet and demand for loans is showing a sharp increase in line with the revival in the economy. This means their income levels will rise without a commensurate increase in defaults. For some large banks net non-performing loans have fallen to decade lows and bank balance sheets remain robust.
Another sector showing promise in line with PM Modi’s focus on ‘Make in India’ is the defence sector. Domestic firms are manufacturing more equipment in India both to meet our own needs and for exports. As a result, defence exports have risen more than 6 times in the last 7 years. With a mindful blend of respectable valuations and thoughtful earnings, investors can reap benefits from this sector, adds DSP Mutual Fund
As demand for goods rises, factories are running near to capacity. To meet growing demand, industries will now have to buy more machines. Capital goods companies that manufacture such machinery are seeing a big increase in orders. This will mean an increase in their sales and profits offering investors yet another chance at good returns cites Netra.
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