Elections are over, where should you park your money? Mirae Asset answers

The asset management company prefers large-cap oriented funds and hence any fresh allocations may be made in diversified funds like largecap, Flexicap and Multicap. H

India's stock market has been on a tear! The Nifty 50 registered its best monthly gains ever in June 2024, surging 6.6%.  Notably, the index crossed the significant 24,000 mark in June, reflecting investor confidence. Interestingly, it took only 23 trading sessions to climb from 23,000 to 24,000, the fastest 1,000-point jump since 2021, said Mirae Asset Mutual Fund in a note. 

"The Nifty 50 witnessed the sharpest single-day decline on June 4, 2024 as the BJP fell short of majority on its own; however, the index rebounded in subsequent sessions as the formation of BJP-led NDA government reassured investors of policy continuity and political stability," the asset management company added. 

 

 While India's market thrived, global markets presented a mixed picture. Some countries, like France, Mexico, and Shanghai, experienced declines, while others, such as Taiwan, South Korea, and the US, witnessed gains. This underscores the importance of diversifying your portfolio to manage risk.

Mirae Asset MF is optimistic about long-term growth, despite potential government changes.

Stable Policies, Strong Growth: Regardless of the upcoming elections, India's focus on job creation and economic reforms is likely to continue. This stability paves the way for a projected 6.5% real GDP growth and 10-11% nominal GDP growth, potentially doubling the economy's size in just seven years. Early days of coalition government indicate no meaningful change in policies.

Boosting Consumption: The new government is expected to prioritize putting money back in people's pockets, particularly for lower-income groups. This translates to a potential rise in consumer spending, fueling market growth across various sectors.

Financial Discipline & Healthy Balance Sheets:  The government is committed to fiscal responsibility, aiming to reduce the budget deficit. Additionally, strong bank balance sheets and low corporate debt paint a positive picture for long-term financial stability.

Where to Invest? Here's what Mirae Asset Mutual Fund has to say:

Large-Caps & Diversification: Opt for large-cap oriented funds and diversified funds like large cap, flex cap, and multi-cap. These offer exposure to a variety of established companies, spreading your risk and offering balanced growth potential.

Hybrid Funds:  These funds provide flexibility by strategically allocating assets across equity, debt, and other instruments. This makes them a good core portfolio option, offering both growth and stability.

Thematic Funds:  Consider thematic funds that align with the predicted growth trends. Consumption-oriented funds could benefit from the rise in spending, while BFSI (Banking, Financial Services, and Insurance) thematic funds could capitalize on the financial sector's stability.

"Investors may invest based on their risk profile and may continue allocating via SIPs. We prefer large-cap oriented funds and hence any fresh allocations may be made in diversified funds like largecap, Flexicap and Multicap. Hybrid funds, given their flexibility in asset allocation may also be made part of core portfolio. In thematic funds may prefer consumption fund for expected mass consumption recovery and BFSI fund given the decent risk-reward," it said in a note.

The asset management company believes the government aims to reduce the fiscal deficit to 5.1% of GDP in FY25 and 4.5% in FY26 respectively . In addition, it said  both banks and corporations boast healthy balance sheets. Banks' net NPAs (Non-Performing Assets) are at a two-decade low, and large corporates have robust financial positions. While government debt has increased post-COVID, fiscal discipline should ensure it remains manageable. Household debt levels are also reasonable compared to global standards. Notably, India's overall debt-to-GDP ratio is lower than it was in 2010, even as global debt has risen.

 Nifty earnings have risen at a 17% CAGR over FY20-24E, matching pace with the Nifty 50 index rising by 80% during the past 4 years. Earnings outlook is still robust for FY25/CY24 as rising corporate spending and strong bank balance sheets anchor earnings growth in mid-teen over the medium term. Compared with othe other Emerging or major economies, India has shown more robust and consistent earnings performance. Visibility of India's cyclical upturn,

full-blown capex cycle, robust demand and expected interest rate easing gives confidence in Indian companies to deliver healthy earnings growth next year. 

Key things to watch out are: (a) Upcoming Finance Budget, (b) Oil price trend, (c) rate trajectory by the central banks (d) Russia-Ukraine & Middle-East war impact on global supply chain and (e) Progress of Monsoon in 2024.

Over the last 12 months, mid/small-cap indices have outperformed the Nifty 50 by 31/45% respectively, with some sectors particularly amongst industrials trading at a premium. Mean reversion is expected in these richly valued sectors. "Overall, we don’t see much deviation in current policy construct and expect earnings momentum to continue," it said.