Equity mutual funds, which are investment vehicles that combine funds from numerous investors for investing in stocks, demonstrated strong performance in July. During this time frame, these funds generated returns of around 11%, showcasing their potential for attractive financial gains. As of July, the market offered a varied selection of 615 equity and equity-oriented mutual funds, granting investors a plethora of choices.
Nifty 50 Index rallied by 3.4% in July. This is on the back of a strong 6% rally seen in the month of June. Sectoral/thematic funds emerged as the top performers among the diverse types of equity funds available, delivering noteworthy returns. It is noteworthy that only one scheme achieved a double-digit return in July, underscoring the significance of in-depth research and strategic decision-making when navigating the mutual fund landscape.
Sectors such as Automobiles, healthcare, financials, telecom and capital goods are likely to contribute to growth. Consensus expects Oil & Gas, cement, and chemicals are likely to drag earnings growth.
"Nifty 50 Index has rallied by 14% on a YTD basis outperforming emerging markets and performing in line with the S&P 500 Index. With elections and budget behind us, the focus is likely to shift back to fundamentals and earnings. We are amid the Q1FY2025 earnings season. Consensus expectations are for Nifty earnings to increase by low single digits in Q1FY2025. Sectors such as Automobiles, healthcare, financials, telecom and capital goods are likely to contribute to growth. Consensus expects Oil & Gas, cement, and chemicals are likely to drag earnings growth. In the near term, we expect markets to track earnings growth. While Nifty has rallied, it is trading at 20x FY26 earnings, which is broadly in line with long-term averages," said Sanjay Chawla, CIO-Equity, Baroda BNP Paribas Mutual Fund.
Going forward
Chawla said as Nifty has rallied by 26% over the last year and valuations have inched up, there could 15% growth in large cap, 22% in Midcap and 19% growth in small cap for the next two years.
"From a valuation perspective, the Nifty 100 Index is trading at 23.5x on a 12 M trailing basis, the NSE Midcap is trading at 39.9x, while the Nifty Small cap is trading at 26x on a 12M trailing basis. Midcaps are trading at a higher-than-average premium to large caps on a historical basis. However, this needs to be seen in the context of growth delivered over the last 4 years and the long-term India story. Consensus is building in 15% growth in large cap, 22% in Midcap and 19% growth in small cap for the next two years," Chawla added.
Focus areas
The primary areas of focus this year have revolved around capital expenditures (capex), the capital market, and the consumer discretionary sector. As the capex narrative remains robust, as evidenced by the allocation of funds in the budget. Nonetheless, in light of the significant outperformance, it is expected to see some level of consolidation.
"With a strong focus on job creation and good monsoon, the consumer sector both discretionary and staples should see an uptick. And finally with growing per capita GDP, financialisation of savings is a theme where we see healthy scope for growth. The entire value chain of AMC, wealth, exchanges, and distributors can be very interesting to look at," he added.
Category of funds that can do well
"India being a growth market, we believe investors should have exposure to themes across the market capitalisation curve depending upon the risk appetite of investors. For medium-risk equity investors, Multicap/Flexicap offers the opportunity to investors to gain exposure to stocks across market capitalisation. A high-risk investor can look at Mid/Small cap funds. From a sheer valuation perspective on the cap curve, a large cap offers values in pockets. If the investor does not want to take an asset call, then the BAF category of funds is ideally suited," Chawla further added.