Uncertainty over Lok Sabha election results along with negative global cues and foreign capital outflow in the last three-four days have led to a correction in largecap stocks, said Mahesh Patil, co-chief investment officer, Aditya Birla Sun Life AMC.
According to Patil, the broader market is still looking fairly good and attractive at this point in time though it has not participated in the rally. One should not get carried away by the price momentum because of inflows and outflows but focus on companies with earnings visibility of 1-2 years. The market breadth may improve but still remain narrow because of global environment and uncertainty around, he said.
“It would be wise to spread the investments over the next three months rather than doing a lump sum investment at this point in time,” he advised, adding that “the allocation across market capitalization should be much more in line with the target allocation. We are positive on mid and smallcap space as well from 2-3 year perspective.”
Patil said he would advise his clients to have larger allocation in multicap stocks followed by largecap. Mid and smallcap allocation can be around 20-25 percent, said Patil.
Talking about slowdown in the consumption space, he said the commentary from big companies like HUL, Dabur indicated a big slowdown in rural consumption, while the slowdown in auto space started way before that.
However, one cannot really fathom the reason for this slowdown but it could be because the fiscal stimulus that was given to the rural sector post Budget hasn’t flown through. This slowdown is likely to continue for a quarter or so.
However, it looks like a temporary cyclical slowdown for the consumption space and not a structural one, said Patil, adding that this correction in good quality consumer names should be an opportunity to look at them.
According to him, the fund flows into the mutual fund industry have to be slightly weaker in April than in March. People are waiting on the sidelines for the election outcome. There have been some redemptions but not too many, and SIP flows have been flat than the previous month, he said.
On NBFCs, he said there is some kind of shrinkage in money available to them.