Indian equity markets are likely to witness a bout of volatility starting next calendar year and it will be like a roller coaster ride for equities, Kotak Mutual Fund said while presenting Market Outlook 2023.
The country's fourth largest mutual fund, based on quarterly assets under management (AUM), advises investors to allocate funds between debt, equity, real estate and commodities.
"This is not the time to be leveraged in equity. This is the time to maintain a neutral allocation to equity and use any correction as an opportunity to enter. We suggest marginal overweight to large cap, and marginal underweight on small and mid-caps. An equal allocation to equities as an asset class," Kotak Mutual Fund said.
Pointing at capital expenditure recovery cycle, Kotak Mutual Fund said that the country is at the cusp of a multi-year capex cycle.
"India is entering a big capex upcycle which would provide a leg-up to the overall economy. Capacity utilisation now is now at 17 quarter high comparable to the pre-pandemic levels. Capex to depreciation ratio for all non-financial listed firms is almost at a historically low level. The next phase of the recovery in domestic demand in India will involve a pickup in private capex, aided by healthy private balance sheets and a prudent policy mix," the fund house said.
The fund house which manages funds worth Rs 2.84 lakh crore is bullish on real estate and home improvement, defence, railway, infrastructure and rural revival themes.
Kotak Mutual Fund says that budgetary capex allocation both at central and state level has gone up considerably and it augurs well for defence, railway and infra sectors.
"The Centre’s allocation to Roads, Railways, Defence has gone up in double digits. India’s defence exports stood at a record Rs 14,000 crore in 2021-22. As per media reports, the government plans to sharpen its focus on infrastructure growth in the coming Union budget by allocating 30 per cent more funds for the roads ministry to speed up construction to more than 50 km of highways daily," the fund house added.
The company is also positive on home improvement space as it sees revival in residential real estate.
The fund house expects that push for infra development and local manufacturing will directly help in rural incomes which will augur well FMCG (fast moving consumer goods) companies.
“The push for infra development and local manufacturing are going to directly help the rural income levels. Be it the development of roadways or setting up of new plants and expansion of manufacturing capacities, these projects are set to happen in rural areas only. This will not only create jobs but will also boost consumption. The higher MSP allocation would go a long way in helping drive consumption of FMCG products in the hinterland. This would be highly beneficial for companies with a strong rural footprint and would help drive growth for the consumer products industry,” the fund house said.