Mid-term equity markets: 3 experts analyse its outlook and opportunities

But, take heart, within this uncertainty there is opportunity. And for the sagacious investor even the opportunity to tidy up his (financial) house.

“Everything is against the equity markets,” says Abhishek Banerjee, Founder & CEO, Lotusdew Wealth & Investment Advisors.

In fact, the US has printed 4.9% GDP growth which might likely get revised up. Wider conflict in the MENA region, depleting household savings, and delinquencies in car loans in the US all remain a risk.

Two wars, the highest ever US interest rates in more than a decade, and compressing margins of Indian business are some of the global points hammering equities. From the domestic perspective, there is an impending election which can result in policy direction cues.

Experts are hesitant to hazard a guess as to how markets will pan out in the near term – say the next six months.

“It is impossible to predict which way markets are headed in the next 6 months, and anybody who professes to be able to do so is just trying to make a lucky guess!,” says Harsh Gahlaut, CEO, FinEdge.

Experts point out that markets have seen a healthy uptrend since March this year, with the bullishness being especially pronounced in the small and mid-cap segments, which is a clear indicator of a broader “risk-on” sentiment.

Let us assume a worst case scenario; i.e. that equities correct from current levels. Here there is good news – you can indeed use such corrections for your benefit.

“The fall (in equities in the near term) is likely to be narrow and sector based,” says Benerjee.

This is due to the fact that different sectors have different dominant business models and hence a macroeconomic factor like rising inflation or a hike in the cost of capital disproportionately impacts across different sectors.

Also, any fall in equities should be temporary as the inherent strength of the Indian bourses is strong.

“This growth has been accompanied by a healthy growth in corporate earnings as well, so this cannot be written off as a ‘house of cards’ kind of rally,” says Gahlaut.

To put this in perspective – the NIFTY’s EPS (earnings per share) was hovering around the 650 mark two years back when we had achieved similar index levels. Now, the EPS stands at around 925. Thus, the growth in earnings has been significantly higher than the rise in stock prices.

This is all the more pronounced for small and mid-caps. In fact, the EPS of the Nifty Small Cap 100 has risen nearly 4 times since April ’21, from 140 odd to more than 520!

And even if there is a correction in Indian equities – this is an opportunity for the investor.

“Correction in Indian markets should be utilised for investing more,” advises Colonel Rakesh Goyal (retd) –a Certified Financial Planner.

Experts state that SIPs (systematic investment plans) should continue irrespective of the market behaviour. Many people tend to stop the SIP during market corrections which must be avoided. “Corrections give us an opportunity to buy more units for the same amount of SIP thus averaging out the purchase cost over a period of time,” says Goyal.

There are strategies for the investor to hedge any market downturn.

“Investors should always follow a simple asset allocation model to diversify between equity and debt,” says Girish Lathkar, Partner and CoFounder, Upwisery Private Wealth. This strategy will balance the risk in the portfolio, and they will always have some dry powder to invest in case of any sharp correction.

Even within the equity spectrum, there are ways to even out any market correction.

“Investors should ideally invest across small, mid and large caps in a judicious manner, based on their financial goals, instead of trying to time or predict the market,” advises Gahlaut.

A systematic approach through SIPs and STPs (systematic transfer plans) is ideal even if markets correct, because there’s no guarantee the corrections will not run deeper after you have deployed a lump sum, and this may trigger all kinds of behavioural biases that could lead you to book losses and sit on the fence again!

“Time and again, we have seen that it is the resilience to block out the noise and remain invested that creates wealth for investors in equities, not their ability to rebalance their investments at the most opportune time or pick the best stocks/mutual funds,” ends Gahlaut.

Manik Kumar Malakar is a personal finance writer.

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Published: 07 Dec 2023, 10:34 AM IST