1. Market Outlook
Macro Perspective
•\u0009India’s Economic Strength: The Indian economy is characterized by strong balance sheets across corporates, banks, households, and the government, providing resilience during downturns.
•\u0009Stability Factors: Price, financial, and political stability remain robust for the long term, despite potential short-term geopolitical shocks.
•\u0009Opportunities: India’s growth is driven by the “three Ds” – Demography, Digitalization, and Domestic Demand – which continue to support economic resilience and investment opportunities.
Bottom-Up Perspective
•\u0009Valuations and Sentiment: Current market valuations are considered fair, with limited upside in the near term. Upside potential is expected to be driven by earnings growth, especially from the second half of FY27.
•\u0009Earnings Growth Drivers: The Reserve Bank of India’s recent policy actions and fiscal stimulus are anticipated to revive consumption and real estate, leading to a broader economic multiplier effect.
•\u0009Market Sentiment: Domestic flows, DMAT account openings, and margin trading facility (MTF) books are steady or increasing, and indicating continued retail interest. However, increased supply of new issues (IPOs, QIPs) and a subdued VIX (volatility index) suggest a need for cautious optimism.
2. Investment Strategy and Recommendations
•\u0009Balanced Approach: Investors are advised to maintain a balanced stance—neither overly aggressive nor pessimistic. Market corrections should be viewed as buying opportunities, especially for equity allocations.
•\u0009Asset Allocation: Equities remain the preferred asset class due to tax advantages and relatively low savings rates, which may prompt more investors to shift from bank deposits to mutual funds, including equity funds.
•\u0009Return Expectations: For FY26, low double-digit returns are considered a reasonable expectation, with stronger performance likely in the second half of the year.
3. Sector and Theme Preferences
•\u0009Healthcare: Focus on domestic pharma, hospitals, and contract development and manufacturing organizations (CDMOs). The aging population is expected to drive disproportionate increases in healthcare spending.
•\u0009Power: The transition from fossil fuel-based to renewable energy grids is seen as a global, long-term opportunity, relatively insulated from domestic macroeconomic fluctuations.
•\u0009Friend-Shoring: Global supply chains are shifting from China to India, supported by government incentives for localization. This is expected to be a significant medium-term theme.
•\u0009Digital/Internet Companies: The rise of digital-first companies in sectors like financial services, Quick-commerce, and insurance is expected to continue as GDP per capita and discretionary incomes rise.
•\u0009Consumer Discretionary & Real Estate: Lower interest rates and tax cuts are expected to revive demand in these sectors, with the real estate cycle projected to remain strong for the next three to four years.
•\u0009IT Products & Services: Contrary to bearish sentiment, the demand for IT services, especially those incorporating AI, is expected to be a net positive in the near term. The fund maintains a relatively high allocation to this sector.
4. Market Valuation Insights
•\u0009Index Valuations: Financials and large companies like Reliance are now fairly valued. There is no clear “pocket of safety” in large, mid, or small caps, and all are considered fairly valued or slightly expensive.
•\u0009Sector Rotation: Earlier, financials were undervalued and outperformed during corrections, but now even these are fairly valued, suggesting the need for caution in incremental investments.
Actionable Takeaways
•\u0009Maintain a balanced and disciplined investment approach.
•\u0009Use market corrections as opportunities to increase equity allocations, rather than shifting between market caps or asset classes based on short-term trends.
•\u0009Focus on sectors/themes with structural growth drivers: healthcare, power, friend-shoring, and digital, and select consumer/IT segments.
•\u0009Set realistic return expectations for the near term and anticipate stronger performance from H2 FY26 and beyond.