Goa, October 25, 2024: After a prolonged bull run, the Indian equity market is witnessing heightened volatility and bouts of selling pressure owing to global uncertainties, valuation concerns, and muted corporate earnings showing for the second quarter. Despite these headwinds, the benchmark Sensex has delivered about 10% returns in the last six months, while the BSE midcap and small-cap indices have given double-digit returns of 17% and 24%, respectively, in the same period (Source: BSE website). This suggests that the structure of the Indian equity market is still intact with minor headwinds, which could be challenging for investors in the near term.
However, the Indian economy’s strong fundamentals, liquidity, and consistent SIP inflows provide a supportive backdrop for investors. The strong resilience displayed by the Indian equity market is due to its domestic investors. Data from SEBI (Securities and Exchange Board of India) shows that since April 2024, foreign institutional investors (FIIs) have been net sellers in equities, offloading shares worth INR 45,600 crore. However, domestic institutional investors (DIIs) have been net buyers in each month, pumping in a whopping INR 3 lakh crore into the market.
Most of the companies that have reported their Q2 (Jul-Sept) numbers are witnessing margin pressure owing to inflation in commodity prices. This is eating into their profits. While the long-term outlook for Indian equities remains positive, it’s crucial for investors to diversify their portfolios to mitigate risks and enhance returns. A business cycle fund would be one of the options that investors can consider as they tend to focus on companies/sectors that are likely to benefit from economic expansion.
Given that India has the potential to lead the next decade of economic growth and become the third largest economy by 2027, investors wouldn’t want to miss out on the opportunity of investing in sectors that will be at the front end of this expansion path. A business cycle fund would be one of the options that investors may consider as they tend to focus on companies/sectors that are likely to benefit from economic expansion.
“Business cycle funds are like investors who try to predict whether a seesaw will go up or down next. If the economy is likely to go up, the fund invests in things that usually do well when the economy is strong, like building houses or starting new businesses. On the contrary, if there is likely to be a slowdown, the fund would invest in companies/sectors that are less likely to be affected, like essential goods or services that people always need, no matter what,” said Satish Mishra, Fund Manager, Tata Mutual Fund.
As of 30th September 2024, the Tata Business Cycle fund has given an approximate annualized return of 47% in one year, and 27% in three years as compared with the benchmark return of approximately 41% and 18% in one and three years respectively. Tata Business Cycle fund has received cumulative inflows of INR 700 crore between April and September 2024. From a regional standpoint, the fund has garnered about INR 13.7 crore from Nagpur city during the same period (Source: Internal data).
But investors who seek a higher safety cover with the benefits of equities can consider the multi-asset allocation funds. The strategy works well in such volatile times. Multi-asset allocation funds aim to strike a balance of risk and returns through diversification across asset classes. These funds invest across multiple asset classes, such as equity, debt, and alternative investments like real estate or gold. By employing sophisticated asset allocation strategies, they aim to provide returns while managing risk.
