Keep core allocation in balanced advantage funds: Tata Mutual Fund

Our advice to investors in 2023 would be to maintain a healthy mix of debt and equity, and keep core allocation in balanced advantage funds, said Tata Mutual Fund. The fund house further said the outlook for India remains relatively stable in an unstable world, with stable macro parameters, lower interlinkage with the global economy and revival of the investment cycle are some of the important factors that can drive above-par GDP growth and earnings growth over next 2-3 years.

In an outlook report for equity markets in CY23, Rahul Singh, CIO-Equities, Tata Mutual Fund, said that exposure to schemes benefiting from broad-based economic growth and investment cycle and looking for alpha in funds that are based on GARP/Value could be beneficial to investors.

Talking about the sectors outlook, Singh said, “Banking sector has started to get its due with all the three levers of profit growth firing i.e. credit growth, margin expansion and lower credit costs. Significant re-rating has happened too in 2022 but there can be more to go in the second tier, mid-size and/or PSU banks if the trends sustain.”

The outlook for IT services does not look good in the next fiscal year. “IT services growth looks set to slow down from the heady 15-20% growth to 5-10% in next fiscal year. Margin pressures will ease but the present valuations still imply some caution barring as IT budgets for 2023 gets scaled down across Hitech, retail and EU regions. Trends from IT budgets and full year guidance for FY24 will be key even though profits might be protected somewhat by better margins,” Rahul Singh said.

On the other hand, the pharma sector, which spent 2022 weathering the price pressures, remains a stock specific sector for now.

Singh said Tata AMC’s investment framework of Growth At Reasonable Price – GARP, which relies on risk-reward criteria and defined segments makes it well placed for the current investment climate.

On the global outlook and its impact on India, Singh said, “at current valuation premium, India’s relative performance in short term and in 2023 becomes a function of what happens to the rest of the world i.e. shallow vs. deep recession in US/UK/EU and the pace of recovery in China post-reopening. A shallow recession in the US/UK/EU combined with slow recovery in China may be the best-case scenario for India as it can sustain India’s valuation premium with limited impact on corporate profits. A deep recession can have a follow through impact on Indian economic growth even though it will reduce the inflationary pressures from input costs. In contrast, a global rebound led by China would reduce India’s valuation premium irrespective of strong domestic fundamentals.”