After several rounds of volatility during 2018, the stock market stabilized towards the end of the year. However, near term risks remain, among which political risk will be the biggest worrying factor weighing on the market before the Lok Sabha election and possibly, even after (in the event of the absence of a clear mandate).
Among key macro risks, the Rupee depreciation is a concern due to widening current account deficit and rebound in crude prices. The global outlook is also uncertain due to industrial slowdown in China, Brexit, US China trade war and concerns regarding US economic slowdown. These various risk factors may cause the market to remain volatile in the near term. In volatile times investors should pay more attention to their asset allocation to limit downside risks.
Near term risks notwithstanding, the medium to long term outlook for Indian equity is positive. India is the fastest growing large economy and as per the UN's World Economic Situation and Prospects (WESP) 2019 report, will continue to remain the fastest growing large economy in 2019 and 2020. The beneficial effects of some of the structural reforms instituted by the current Government like GST, Insolvency and Bankruptcy Code (IBC), direct benefits transfer, further opening to FDI will be seen in the coming years. India has jumped 54 places in World Bank’s Ease of Doing Business Index in last 2 years and India will continue to attract foreign investor interest. Indian equity continues to be an attractive asset class for long term investors.
Aggressive Hybrid Funds or Equity Hybrid Funds enables investors to reap long term benefits of equity while balancing near term risks with prudent allocations to debt. In the current political and economic climate, these mutual fund schemes are excellent investment choices for investors with moderately aggressive risk appetites.
According to SEBI mandate, the minimum and maximum equity allocations in Equity Hybrid Funds should be 65% and 80% respectively. The minimum and maximum debt allocation should be 20% and 35% respectively. The fund manager has the flexibility to manage asset allocation within the ranges specified by SEBI based on his / her outlook. The equity portion has the potential to generate capital appreciation for investors in the long term, while the debt portion provides stability to the portfolio in the short term.
Indiabulls Equity Hybrid Fund was launched last month. In the short period of time since inception till date, this aggressive hybrid fund has already become one of the top performers in its category. It has given 1% return in just last 1 month. The good performance of the fund is attributable to prudent stock selection with cautious allocation of funds towards select large caps and overweight in defensives considering the volatility in the markets.
The fund is currently biased towards growth theme with a large cap orientation having increased exposure to defensives sectors like IT, Pharma & FMCG with well-known companies like ITC (5.43%), TCS (3.84%), Infosys (4.50%) and Dr. Reddy’s (1.81%), as on Jan 18th, 2019. In addition to the defensive play, the fund managers expect corporate banks like ICICI Bank, HDFC Bank & Axis Bank to make a strong turnaround in earnings trajectory going ahead. The fund managers are bullish about the banking sector with improvements on the NPA front as well as pickup in credit demand after the elections. The fund managers also expect positive improvement in CAD which will determine the fund’s fresh allocation towards cyclical sectors like auto, energy & metals etc.
Due to the near term risk factors discussed earlier, the fund managers have adopted a cautious stance, allocating most of their funds in NIFTY futures to identify the right opportunity and allocate funds through prudent stock selection. The fund managers are currently holding 35% in Cash (including futures)which shall be utilized in companies having good earnings growth, stable cash flows and a reasonably good opportunity to generate higher alpha. In our view the fund managers have a sensible approach to balancing risks and long term returns; we expect the fund to perform well in the medium to long term.
Check the complete details of Indiabulls Equity Hybrid Fund here.
In this blog post, we discussed about the near term risks facing the market and also the growth opportunities which lie ahead. Mutual Fund Equity Hybrid Funds are excellent investment choices in such conditions. These funds will provide stability to your portfolio in the short term and can give good risk adjusted returns in the long term. Indiabulls Equity Hybrid Fund is a new entrant in this category and is off to a good start. You should have a long investment horizon for this and other equity hybrid funds. Investors should consult with their financial advisors, if equity hybrid funds like Indiabulls Equity Hybrid Fund are suitable for their investment needs.
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.
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