The information contained herein (the “Information”) may not be reproduced or disseminated in whole or in part without prior written permission from the Company. The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared based on publicly available information, internally developed data and other sources believed to be reliable. The directors, employees, affiliates or representatives (“Entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy, reliability and is not responsible for any errors or omissions or for the results obtained from the use of such information. Readers are advised to rely on their own analysis, interpretations & investigations. Certain statements made in this presentation may not be based on historical information or facts and may be forward looking statements including those relating to general business plans and strategy, future financial condition and growth prospects, and future developments in industries and competitive and regulatory environments. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, they do involve several assumptions, risks, and uncertainties. Readers are also advised to seek independent professional advice to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this document shall not be liable in any way for direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of the lost profits arising from the information contained in this material. Readers alone shall be fully responsible for any decision taken based on this document.
Copyright © 2022 Fintso
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When inflation is high and broad-based, with no sign of entrenchment, central banks have only one tool to tackle rising prices: a hike in interest rate. However, higher interest rates come with a price: economic slowdown. As inflation in the US touches a decadal high, the US Fed is stepping up its war against inflation with aggressive rate hikes. The 75-bps rate hike in mid-June (highest in 28 years) was followed by another 75-bps increase by end of July, as concerns about inflation trump worries about growth.

However, as the markets believed the Fed’s tone had a dovish tilt, there was a rally in the risky assets. Also, as the risk of recession grew louder after the US economy contracted for the second consecutive quarter, markets believed inflation measures will fall in place bringing an end to the tightening cycle near.

While the market seems to believe that the Fed may slow down its rate hikes, we doubt the narrative is that simple. There are several headwinds such as the Russia-Ukraine crisis, geopolitical tension between China - Taiwan, and the lingering effect of covid itself, which all remain outside the Fed’s control. Also, the labor markets remain strong, which lends support to the idea that the US is not quite in a recession and that the Fed will continue its path of interest rate hikes.

Given the magnitude of these unknowns, we believe the Fed will follow a calibrated approach. They will look at almost 8-weeks of economic data before their next meeting in September to decide on the magnitude of the future rate hikes. While, the recent jobs data has restored the Fed’s confidence in hiking rates sharply, the deflationary wave due to the economic slow down in China could taint the Fed’s decision.

In the recent monetary policy, as expected the RBI hiked interest rates by 50 bps even though inflation has started to ease in India. An increase in the rates was necessary to minimize the interest rate differential between India and the US.

This year, the US Fed has hiked interest rates by a massive 225 bps, while the RBI has just bumped up the rates by 90 bps (now 140 bps including the recent hike). This increasing difference in the rates between the two countries is one of the reasons foreign investors are pulling out money from the Indian markets. This has also put pressure on our currency.

Given that the surplus liquidity in the banking system has tightened due to the RBI’s intervention in the foreign exchange market to stabilize the rupee, no measures were announced to suck out any liquidity.

Going forward, we expect inflation to hit below the 6% mark as the global commodity prices are coming down. Also, we believe that the RBI shall continue to follow the footsteps of the US Fed to avoid any major currency volatility. Given the uncertainty with rate hikes and their magnitudes, reduction in liquidity and substantial supply of government securities coming up, bond yields are expected to remain under pressure. Also, equity markets may fill jitters depending on any new upcoming data in either the US or India.



WE LIKE 6 THEMES IN THE CURRENT MARKET ENVIRONMENT

1. Smallcap Growth Companies:
Smallcap growth stocks were punished severely over the last 9 months due to rising inflation as their future earnings growth was discounted more. However, if inflation is coming down, this trend should reverse

2. Ukraine War Relative Winners:
We have two subthemes to play Ukraine War relative winners:

  • Defense: The Ukraine conflict is causing a huge spike in defense spending around the world and arms manufacturers will be the winners
  • Country Winners: While US consumers are getting hurt from rising commodity and energy prices (like all consumers around the world), their stock contains many companies that benefit from it. The US is either self-sufficient or a net exporter of energy and most commodities. Furthermore, it has little exposure by way of trade with either Russia or Ukraine

3. Tech Winners:
We have 3 subthemes to play Tech Winners:
  • Semiconductors: Semiconductors are essential to most electronics. Their demand is skyrocketing while supply chain disruptions are increasing
  • Cybersecurity: Cyber-attacks on enemy infrastructure are a big part of modern warfare and countries are strengthening their defenses against such attacks. Cybersecurity software developers will be the winners
  • Mega Cap Growth: Mega Cap Growth stocks with high percentage holdings in tech giants such as Apple/Google/Amazon and Microsoft, with their dominant positions and established supply chains are expected to weather the current market uncertainties the best

4. Infrastructure Spending: Countries across the world are investing in their infrastructure to stay competitive. Global warming trends suggest that this spending may accelerate

5. Recession Risk Winners: In a recessionary or a slow-growth environment, consumer staples and healthcare perform the best

6. Oil: While many commodities have sold off, including Oil, the underlying dynamics of Oil supply and demand point to a prolonged period of higher prices

Choosing the right mutual fund is one of the most critical and challenging decisions an investor/advisor must make. Our focus here is on ‘choosing right’ over ‘choosing the best performing’ as we believe it would be impossible for anyone to predict the best performing mutual funds consistently.

The question then arises which are the right mutual funds to be considered for investing. We follow the analytical approach for recommending funds, focusing on three tenets viz. past performance, the manager’s ability to identify trends in the market, and their stock-picking ability. We perform the entire process of fund selection every quarter to check for any deviation in our recommended funds.

The table below lists our recommended funds across different categories based on the March-end data.

Mutual Fund Ranking

Quarter Rank

Final Rank

Quant

Skill

Sector Contribution

Large cap (total 27 funds)

Axis Bluechip Fund-Reg(G)

2

2

1

2

Mirae Asset Large Cap Fund-Reg(G)

3

1

1

4

Canara Rob Bluechip Equity Fund-Reg(G)

2

2

4

9

 

 

 

 

 

Multicap with Large cap bias (total 34 funds)

JM Flexicap Fund-Reg(G)

2

1

1

1

Sundaram Focused Fund(G)

2

1

3

5

Axis Focused 25 Fund-Reg(G)

3

2

1

7

UTI Dividend Yield Fund-Reg(G)

2

2

4

11

DSP Flexi Cap Fund-Reg(G)*

3

4

2

26

 

 

 

 

 

Multicap (total 47 funds)

Parag Parikh Flexi Cap Fund-Reg(G)

1

1

1

1

Mirae Asset Emerging Bluechip-Reg(G)

2

1

1

2

SBI Focused Equity Fund-Reg(G)

2

2

1

3

Nippon India Focused Equity Fund(G)

3

2

1

8

Kotak Equity Opp Fund(G)

3

1

3

17

 

 

 

 

 

Midcap (total 21 funds)

Axis Midcap Fund-Reg(G)

1

1

2

1

DSP Midcap Fund-Reg(G)

2

2

3

3

Invesco India Midcap Fund(G)

2

3

4

12

 

 

 

 

 

Small cap (total 14 funds)

Union Small Cap Fund-Reg(G)

2

1

2

2

Axis Small Cap Fund-Reg(G)

2

1

2

2

 

 

 

 

 

ELSS (total 34 funds)

Mirae Asset Tax Saver Fund-Reg(G)

2

1

1

1

Axis Long Term Equity Fund-Reg(G)

2

2

1

2

Baroda BNP Paribas ELSS Fund-Reg(G)

2

2

1

2

Motilal Oswal Long Term Equity Fund-Reg(G)

3

3

1

13

Canara Rob Equity Tax Saver Fund-Reg(G)*

2

3

4

21
*Under Review
After being in review for couple of quarters, LIC MF Large & Midcap Fund-Reg(G) has been removed from the list of recommended funds

The information contained herein (the “Information”) may not be reproduced or disseminated in whole or in part without prior written permission from the Company. The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared based on publicly available information, internally developed data and other sources believed to be reliable. The directors, employees, affiliates or representatives (“Entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy, reliability and is not responsible for any errors or omissions or for the results obtained from the use of such information. Readers are advised to rely on their own analysis, interpretations & investigations. Certain statements made in this presentation may not be based on historical information or facts and may be forward looking statements including those relating to general business plans and strategy, future financial condition and growth prospects, and future developments in industries and competitive and regulatory environments. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, they do involve several assumptions, risks, and uncertainties. Readers are also advised to seek independent professional advice to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this document shall not be liable in any way for direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of the lost profits arising from the information contained in this material. Readers alone shall be fully responsible for any decision taken based on this document.
Copyright © 2021 Fintso