IT, Pharma, Flexi or Multi-Asset? Which mutual fund is best to start SIP in 2023-24?

Equity markets are trading at attractive valuations. Consider this: Price-to-earnings (P/E) ratio of the benchmark NSE Nifty 50 index is at 20.82 times against a five-year average of 26.68 times, indicating an attractive valuation of the domestic equity markets. Moreover, the Indian growth story looks intact with the strong balance sheet of corporates and the government’s continuous thrust on infrastructure development. 

According to S Naren, ED & CIO, ICICI Prudential Mutual Fund, Indian equity markets are more reasonable now, backed by strong domestic macros. "

“Despite the general uncertainty in the world, India remains well-positioned owing to factors such as a strong corporate balance sheet, the government's emphasis on creating long-term infrastructure (likely to create a multiplier impact), and initiatives to support the revival of India's manufacturing, to name a few. All of these are positive steps for domestic markets. Therefore, without worrying about the short-term outlook, investors should look at 2023 as the year to make long-term investments,” Naren explained.

Hence, if you are a long-term investor, market volatility should not be a major concern. To overcome this uncertainty, a great strategy is to invest in Systematic Investment Plans or SIPs. Regardless of whether the markets are fluctuating, investing in mutual funds through SIPs is a wise choice. With periodic investments in mutual funds, you can purchase when the market is on the rise and when it's falling, resulting in a cost-average approach. Investing in a disciplined manner through SIPs is the best way to mitigate the stock market's volatility and attain superior returns.

So, the big question now is what strategies and themes might work out in 2023.  Which category of mutual funds is best to start an SIP? Experts say along with the right allocation, picking up the right funds can be key to earning higher returns. 

“In equity, we prefer flexi cap category as there is flexibility to invest across market capitalisations.  In the times ahead, we believe macros will play a significant role which makes business cycle fund attractive. For those averse to taking sector calls, they may consider investing in a thematic advantage fund wherein the fund manager will invest in three to four sectors based on the relative attractiveness and the opportunities available. Fund types like the balanced advantage and the multi-asset can be considered for lump sum investment. In general, we think SIPs are a better way to invest. In light of the current market environment, along with SIPs, investors may consider features such as the Freedom SIP and Booster STP, to spread out their investments,” he added.

Sahil Kapoor, Market Strategist and Products, DSP Mutual Fund is upbeat about the pharma sector. “Healthcare is the space with a good margin of safety. Of the 97 stocks we analyze, 2/3rd are trading below their long-term avg Price to Earnings and EV to Ebitda numbers. There is also a possibility that pricing pressure for the US generics market is also over. This can be a sector which can provide good risk-adjusted investment journey in next few years," he said.

Which themes or categories should one stay away from? “Retailing, consumer staples are pockets which continue to remain expensive in terms of valuations. This is one area we have kept away from,” said Naren.

“Themes which are dependent on commodity prices like metals, energy and some global linked themes may continue to consolidate on the near term. Some of them like IT may provide opportunity in case of further valuation correction,” added Kapoor.