With the recent announcements on fiscal consolidation by the government and hopes of cut in interest rates by the Reserve Bank of India (RBI), Indian fund managers have become more optimistic towards Indian equities and are advising investors to increase allocation towards the equity market.
According to the latest fund manager survey by ICICI Securities, the overall outlook has improved significantly over the last three months, with nearly 60% of the fund managers expecting the market to be up between 15% and 20% after one year. In the previous survey (August 2012), only 8% of the respondents were found to be bullish on Indian equities.
The I-Sec survey, which covers 12 domestic fund managers from the mutual fund industry and is conducted on a quarterly basis, found 25% of respondents expecting market returns in the range of 10-15%, while 17% of the respondents expected the market to deliver returns in 0-10% range.
Fund managers had divergent views on market valuations, with 50% of the fund managers saying the equity markets are under- or fairly valued. However, the current I-Sec survey found higher number of fund managers expressing undervaluation in the markets compared with the previous survey.
“The investment confidence has improved significantly after the government focus on major reforms to improve growth prospects,” said Pankaj Pandey, head, Research, ICICI Securities. Fund managers were more hopeful of better earnings growth for the next year (FY14) compared to FY13. A total 75% of respondents expected earnings growth to be in the range of 10-15% in FY14 against 5-10% in FY13.
The preference, though divided, remain slightly favourable towards large caps compared to midcaps. Banking, along with FMCG, pharma, and media remained the preferred sectors. Within banking, fund managers remained overweight on private banks. Within debt markets, most fund managers expected 10-year benchmark G-sec yields to be lower from the current levels of 8.20%. Fund managers advised investors to increase the duration of their fixed income portfolio from a six-month horizon.