Creating a new normal…

The Indian markets have been scaling new highs with NIFTY remaining above 10,000 for over a month. The current rally in Indian market is fuelled by strong liquidity from domestic investors. As strong inflows continue into domestic mutual funds reforms initiated by the Modi-led government reaffirm the faith of foreign investors ( as evident from a rating upgrade from Moody’s) in the India growth story which could well stay for another 7 years.

Domestic mutual funds continue to attract flows from investors with assets under management (AUM) of the industry increasing by Rs.51,148 cr in October to touch a new high of Rs.21.41 lakh cr. As per data from the Association of Mutual funds of India (AMFI), equity-oriented mutual funds (including arbitrage funds), balanced funds and equity linked savings scheme (ELSS) funds saw net inflows of Rs. 21,900 cr in October. In September, these funds saw inflows of Rs.27,077 cr. For the first seven months of the current financial year, cumulative inflows into these funds have tripled to Rs.1.51 lakh cr as compared to Rs.46,840 cr in the same period of the previous year.

Foreign institutional investors (FIIs) who took a break from buying Indian shares in August and September are returning after recent government announcements such as the Rs.2.11 lakh cr PSU bank recapitalization plan. Over October and November so far, FIIs have invested a net of $1.9 bn in Indian equities. US-based Moody’s on 17th November upgraded India’s sovereign credit rating by a notch to ‘Baa2’ with a stable outlook citing improved growth prospects driven by economic and institutional reforms. This is expected to further boost FII investments into India. For the year to date, they are buyers to the tune of $7.4 bn.

September quarter results for most companies have already been declared & results have largely been in line with expectations. After its muted performance in the June quarter due to the transition to GST, India Inc is getting back on track going by the September quarter results. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will also be closely monitored. With real estate and gold giving subdued returns, investors have been looking at equities as an investment avenue. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time.

The markets seem to be consolidating above the 10000 NIFTY mark. Corporate performance & economic data which comes in H2FY18 will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. Thus the general expectation is that H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

Steps to choose best performing mutual funds

One of the best ways to invest in the stock market is through mutual funds. However, identifying good mutual fund for long term investment is not easy. Several financial web sites, blogs, financial advisors indicate various parameters to rate the mutual funds. However, some of the basic parameters indicated below will help you choose the correct mutual funds for you.
Steps to single out best performing mutual funds:
1) Invest based on risk appetite: You should choose a mutual fund based on your risk appetite.
  •  High risk appetite individuals can invest in predominantly equity oriented funds- large cap/diversified funds, mid-cap/small cap funds, sector funds, etc. These are high risk mutual funds, but provide high returns if invested in the long run.
  • Medium risk appetite individuals can invest in large cap funds, hybrid funds, debt funds etc.
  • Low risk appetite individuals can invest in hybrid funds and debt funds.
    Hence, the primary criteria for choosing mutual funds does not depend on whether a fund is good or not, but it depends on your risk profile.
2) Invest for long term: Investment in mutual funds should be invested for long term purpose. You should invest that part of your money in mutual funds which you do not need for next 8 to 10 years.
3) Choose a fund which is consistently performing well: Investors generally jump and invest in funds which are just opened for subscription or which have provided good returns in last 1 year ignoring past performance. However, you should select mutual funds which are consistently performing for more than 5 years. When I say consistent performers, it’s a mutual fund out performing its benchmark index or its peer funds.
4) Invest in a mutual fund where AUM > Rs 100 Crores: AUM is the value of investments in a mutual fund scheme. Assets Under Management (AUM) indicate how well the mutual fund scheme is trusted by investors. Higher AUM indicates that more and more investors are investing in such schemes and lower indicates that investors are ignoring/avoiding such schemes. New mutual funds would have lesser AUM as they are yet to prove in the stock market and yet to be gain investors trust.
5) Do a basic check on the Fund Manager: Your money will be in the hands of the fund manager managing the mutual fund scheme. Do a basic check on the experience, background and reputation of the fund manager. An experienced and reputed fund manager will be more capable of managing your money and ensure better returns.
6) Invest in top rated funds: Most of the mutual funds are generally rated by CRISIL or Value Research Online. CRISIL rates on a scale of Rank-1 (good) to Rank-5 (worst). Similarly Value Research rates, mutual funds on 1-Star (worst) to 5-Star (good). If you can view these ratings for a mutual fund scheme and select, it could be a winning mutual fund.
7) For sector funds, analyse how well is sector doing: If you are planning to invest in the sector based funds like Banking, Pharma, Infrastructure, Technology, FMCG etc. you should first analyse the sector’s current performance and future outlook over the next 3 to 5 years. For example I feel that the new government will focus on infrastructure development and there could be good credit off take as the economy recovers. Hence Infrastructure and Banking sector are expected to do well in next 3 to 5 years.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’