We interviewed nine Fund Houses namely Birla Sun Life MF, Canara Robeco MF, DSP Black Rock MF, HDFC MF, ICICI Prudential MF, IDFC MF, Reliance MF, Religare MF and UTI MF to get a perspective on the markets and the economy.
Here are some of the key findings:
Outlook for equities
Most fund houses expect Indian equities to be volatile and range-bound during the year. Religare MF recommends bottom-up stock picking as it believes the index upside is limited.
GDP growth estimates…
For FY11, the average expectation for the Indian economy was 7.7%. The lowest figure quoted was 6.5% and the highest 8.5%, while 8% was the median figure.
On whether midcaps would outperform large caps
The view was mixed among fund houses. Birla MF believes that midcaps outperformed large caps so far because valuation gap had increased to ~30%. With the CNX MidCap Index still trading at 18-19% gap to the Nifty, mid-caps are likely to continue their out-performance. IDFC MF feels that only quality mid-caps will display superior performance. While, HDFC MF has a somewhat neutral stance, ICICI Prudential MF is of the opinion that as per cyclical trend, it is difficult to expect mid-caps to continue their out-performance in 2010. IDFC MF advises investors to avoid high beta stocks and look for value picks with a strong business model.
Direction of the Budget
The key expectation from the budget is a clear roadmap to reduce the fiscal deficit. Fund houses believe that disinvestment and implementation of taxation (treatment of dividends, capital gains, STT) would be key measures to reduce the fiscal deficit. ICICI Prudential MF believes that it would be a year of fiscal consolidation. It also expects Budget 2010 to provide necessary support to infrastructure growth, remove bottlenecks and increase execution pace. Birla Sun Life MF does not expect anything negative for capital markets. Some measures towards rolling back of stimulus are foreseeable in the current budget as per IDFC MF, Religare MF and HDFC MF. Initiatives aimed at rural development are likely as per IDFC MF. Almost all fund houses expect an announcement on Goods and Services Tax (GST). HDFC MF is of the view that oil product pricing reforms are urgently needed.
Triggers for 2010
Fund managers feel that budget, monsoon and state of the global economy are the key triggers for 2010. Reliance MF feels premature withdrawal of economic stimulus, hardening of interest rates in the US on the back of faster economic recovery, US dollar strengthening and reversal of dollar carry trade are the key global concerns and poor monsoon during FY11 is one of the key concerns on the domestic front.
Sectors likely to outperform and under-perform
Most fund houses are bullish on the IT space; it is believed to be on a revival path due to increased IT spending across the globe. Another dominating theme is that of consumption. Most fund managers expect consumption-related stories to do well. Telecom stands as the biggest under-performer on the fund managers list. Birla MF states that while demand in telecom is quite robust, the emerging competitive scenario may lead to a situation where it may not result in any significant gain to the equity stake holders.