Mutual funds in July: In recent weeks, markets reached new highs, leading investors to engage in profit-taking due to the elevated valuations of Indian equities. Nifty 50 registered its best monthly gains (+6.6% in June 2024 next best month March 2024 at +1.6%) this year and closed above the 24,000 mark.
Mirae Asset Mutual Fund in its monthly note said that the Nifty 50 witnessed the sharpest single-day decline on June 4, but recovered in subsequent sessions.
“The Nifty 50 witnessed the sharpest single-day decline on June 4, 2024 as the BJP fell short of majority on its own; however, the index rebounded in subsequent sessions as the formation of BJP-led NDA government reassured investors of policy continuity and political stability. Notably, the index took 23 sessions to move from 23k to 24k (vs 88 sessions from 22k to 23k), the fastest 1k points journey since 2021,” the AMC said.
Quick takes
Mirae Asset MF observed:
> Govt’s focus: India is expected to maintain its focus on job creation and economic reforms regardless of the upcoming elections, ensuring stability in the economy. Projections suggest a 6.5% real GDP growth and 10-11% nominal GDP growth, potentially doubling the economy’s size in just seven years.
> Policy and Reforms path: A reduced mandate for the NDA is unlikely to reverse the reforms of the past decade. However, tough reforms like labour-related reforms might need broader political consensus. Economic growth and reforms remain critical for job creation, ensuring policy continues to align with political objectives.
> Consumption and Fiscal Policies: The new government may prioritise boosting private consumption, particularly for lower-income groups, to perform well in upcoming state elections. The investment expense percentage has increased from 10% to 18%. We expect the capex push to align with nominal GDP growth, and more reallocation to mass consumption. An extra dividend of Rs 1.1tn from the RBI to the government also supports in increasing allocation towards rural and social welfare schemes without cutting government capex.
> Financial Stability: The government aims to reduce the fiscal deficit to 5.1% of GDP in FY25 and 4.5% in FY26 respectively. It is unlikely that the fiscal deficit may exceed these estimates or that the FY26 target will be missed. Increasing the fiscal deficit target could harm the fiscal consolidation credibility built over the years.
> Strong Balance Sheets: The strength of bank and corporate balance sheets is notable. Banks’ net NPA is below 1%, the lowest in two decades, and large corporates have robust balance sheets. While government debt has increased post-COVID, fiscal discipline should ensure it remains manageable. Household debt levels are also reasonable compared to global standards. India’s aggregate debt to GDP is lower than in 2010, while it has risen globally.
Investment guide for July
Large-Caps & Diversification: Opt for large-cap oriented funds and diversified funds like large cap, flex cap, and multi-cap. These offer exposure to a variety of established companies, spreading your risk and offering balanced growth potential.
Hybrid Funds: These funds provide flexibility by strategically allocating assets across equity, debt, and other instruments. This makes them a good core portfolio option, offering both growth and stability.
Thematic Funds: Consider thematic funds that align with the predicted growth trends. Consumption-oriented funds could benefit from the rise in spending, while BFSI (Banking, Financial Services, and Insurance) thematic funds could capitalise on the financial sector’s stability.
“Investors may invest based on their risk profile and may continue allocating via SIPs. We prefer large-cap oriented funds and hence any fresh allocations may be made in diversified funds like largecap, Flexicap and Multicap. Hybrid funds, given their flexibility in asset allocation may also be made part of core portfolio. In thematic funds may prefer consumption fund for expected mass consumption recovery and BFSI fund given the decent risk-reward,” the fund house said in a note.