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    Market to remain volatile over the next 18 months, writes S Naren of ICICI Prudential AMC

    Market to remain volatile over the next 18 months, writes S Naren of ICICI Prudential AMC

    Market to remain volatile over the next 18 months, writes S Naren of ICICI Prudential AMC
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    By S Naren   IST (Updated)

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    With the state election results out of the way, one of the recent overhangs of the market has come to pass.

    With the state election results out of the way, one of the recent overhangs of the market has come to pass. However, we expect the market to remain volatile since we are getting into election year.
    The market currently is fairly valued, barring a few large caps. Hence, we are neutral to cautiously optimistic. Historically, election years have always been volatile times for Indian equity markets.
    One of the key observations over the last three election years - 2004, 2009 and 2014 - has been that the best investment strategy for an investor during such times is the Systematic Investment Plan (SIP) and systematic withdrawal plan (STP) approach.
    As a result, we see 2019 as a year of accumulation. During such a phase, the near term returns may not be high, but investors who invest through the accumulation phase tend to make outsized gains in the subsequent bull market.
    The last time the market witnessed such a phase was during 2010 to 2013, a time when the market can at best be described flat. However, the returns came during 2014-2017.
    The one factor to watch out for in the interim would be the US Federal Reserve’s stance on interest rates. Since the US economy is robust, a higher interest scenario is very likely to prevail.
    During such times, it’s very unlikely for an emerging market like India to see a secular bull run. The current accumulation phase is likely to continue till the times US Federal Reserve were to change its stance on quantitative tightening. We are of the view that sizeable gains and durable FII flows will be made only after this tightening phase finally turns over.
    Macro wise, India is in a better spot given that crude oil prices have corrected, thereby relieving stress on current account deficit. Also, the pressure on currency too has come off leading to overall financial stability. All these factors augur well for fixed income market as well.
    Consequently, it is very likely that the central bank may keep the rate stable if the data set continues its current trend. Nevertheless, a slump in oil price does not mean buy equities. Over the years, oil price and equity market direction has proven to have a positive co-relation.
    In the current context, one can invest in a systematic manner in products such as smallcap, midcap and value funds. For lump sum investments, balanced advantage and equity savings category would be the preferred category of funds to invest in. In terms of sectors, infrastructure, banks, consumption linked pockets are opportunities where one can look to tap in.
    S Naren is executive director and chief investment officer, ICICI Prudential AMC.
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