Retail investors should treat any correction in the stock market as a friend

Chandigarh, April 16, 2015: The Indian markets are witnessing tremendous volatility. However, Sanjay Dongre, Executive Vice President and Fund Manager (Equities), UTI Mutual Fund has a positive outlook for Indian economy in the long term. He states, “Declining crude oil prices and commodity prices means inflation may remain lower for a longer period of time. While US and other economies may look to raise interest rates while Indian economy may experience declining interest rates in next 12-18 months. As the government is totally committed to maintaining lower fiscal deficit and current account deficit in the coming years, it auger well for the recovery of GDP growth to  6%+ ( based on old series) in the next three years.”

Commenting on his sectoral picks, Dongre added, “With decline in the inflation, improvement in consumer sentiments is likely to precede ahead of recovery of investment cycle. Hence consumer discretionary sector is likely to do well in the near term. From 2-3 year perspective, the NBFCs and Cement sectors are looking attractive. In next 2-3 years, interest rates in the economy are expected to be significantly lower that the existing one. This may lead to lower cost of funds for NBFC which augers well for the loan growth. In cement sector, demand - supply gap is expected to narrow considerably with lower supply additions. It bodes well for the pricing power of cement sector. Banking sector is likely to be a major beneficiary of the declining interest rates and recovery of GDP growth in the economy.”

Dongre advices the investors to be patient considering the current market scenario. “In the next three years, micro-economic conditions are likely to witness significant improvement and would be accompanied with low inflation, low interest rates, declining fiscal deficit, low current account deficit and higher earnings growth. In the past, we have observed that the higher earnings growth is accompanied by the above average market valuations and lower earnings growth is accompanied by the below average market valuations. As the earnings CAGR growth is expected to be 16-17% during FY15-18, the market may quote at above average valuations during the period of high earnings growth. Hence retail investors should treat any correction in the stock market as a friend and increase their equity allocations,” said Dongre.

He added that as equity assets class have far higher volatility compared to other asset classes, the best way to even out such volatility is to invest through SIP (Systematic investment Plan).  Depending upon the risk appetite, investor should allocate 75-100% of equity investment to diversified equity funds and 0-25% to midcap/thematic/sector funds.