By Sanjiv Bajaj
The number of people getting infected with Omicron, a Coronavirus variant, is increasing rapidly. Maintaining social distancing, getting vaccinated and following the safety protocol is the need of the hour for all of us. The good news is that cases of hospitalisation have been low till now but one should not lower the guard and follow the safety protocol at all times.
The impact of Omicron on the economy is yet to be seen as it is still early days. However, going by the GST collections and the pent-up demand-led sales across industries over the last 18 months, the impact on the economy may remain subdued. The resilience shown by the various sectors of the economy has been exemplary; still, some sectors such as hospitality, entertainment and tourism have been impacted negatively.
Factors to watch
Budget 2022 could throw up some positive surprises as far as the government’s disinvestment plan is concerned. This could propel the upward movement of stocks in varied sectors, especially infrastructure if there are Budget proposals around it. Inflation may, however, play spoilsport and RBI may have to take extra measures to keep interest rates low. In fact, a hike may not be ruled out at some point that could come in the second half if inflation remains untamed. Global inflation and the impending interest rate hikes by the US Federal Reserve after a long time will also impact global inflows and outflows from equity markets worldwide including India.
Valuation of stocks is still higher in some pockets of the market. Quarterly corporate earnings will remain a crucial factor for the stock prices to rise or adjust to new realities. There could be corrections but such dips cannot be ruled out in markets. Remember, the more you save when the markets are down will determine how much you accumulate over the long term.
The long term growth story for India remains intact and hence any dips or fall may be used as an opportunity to add quality stocks or equity funds in the portfolio. Sectors to watch could be hotels, entertainment as the opening up themes takes the front seat once the pandemic subsides. Banking, technology, infrastructure may be the other sectors to consider.
What to do
Long-term investors in equity mutual funds should stay invested irrespective of the market movements. SIP need not be discontinued as it helps in averaging the cost of holding of MF units over the long term. As and when NAV falls due to the market fluctuations, they may add fresh funds to the same folio to accumulate more over the long term. New investors of equity mutual funds also need not try to time the market. Those sitting with lumpsum may use STP or stagger their funds into the market intermittently as per their risk profile. In doing so, it helps to take a managed approach in keeping exposing funds to the equity market at regular intervals for a better risk-adjusted return.
Choose five to seven consistently performing equity mutual funds which are diversified across market capitalisation and industries. Long-term equity mutual funds may continue to stay invested and stick to well-performing large and mid-cap funds. The choice of small-cap funds can be made by those who have a high-risk profile as the risk-return ratio is high in them. Some portion may be invested in them including thematic or sector funds such as pharma funds and IT funds.
Avoid duplication of mutual fund schemes and have a proper asset allocation plan in place with exposure to debt and gold along with equities. In the current scenario, within the debt fund category, the floating bond funds can be opted for if the investment goals are at least three years away. Gold has remained almost flat over the last 1-year and 10-year, but keeping rising inflation into context you may take 5-10% exposure in their portfolio. Rather than physical gold, you may consider sovereign gold bonds to invest in gold.
Conclusion
As far as year 2022 for the stock market is concerned, unlike the 20-plus return we saw in 2021, this year the returns may remain muted. Still, equity market investors can definitely hope for a positive end to 2022, although intermittent volatility cannot be ruled out.
The writer is joint chairman & MD, Bajaj Capital
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