Sensex Stagnates at 73,000‑Mark as Investors Seek Guidance on Market Outlook October 27, 2024 – New Delhi – The Indian benchmark index, the Sensex, has hovered around the 73,000 level for the past three years, prompting investors to seek clarity on the factors that have kept the market from delivering stronger returns. In an interview with Sandeep Singh, National Bureau Chief at The Indian Express, Sankaran Naren, Executive Director and Chief Investment Officer of ICICI Prudential Asset Management Company (AMC), outlined the key headwinds and offered advice on portfolio construction. ### Why the Market Has Been Stuck Naren said that the markets were “overvalued” three years ago, a condition that still lingers. He identified three main reasons for the current sluggishness: 1. Geopolitical and commodity pressures – The war in Ukraine, tensions in the Gulf, and record‑high crude oil prices have weighed on investor sentiment. 2. Rapid AI‑driven growth abroad – Countries such as the United States, South Korea, Taiwan, and Japan have seen higher growth rates fueled by artificial intelligence, drawing capital away from India. 3. Capital outflows to IPOs and other investors – Since March 2023, money flowing into equity mutual funds has largely benefited three groups: Indian promoters launching IPOs, private‑equity firms selling pre‑2023 holdings, and multinationals listing in India to capture higher valuations. Naren noted that “all that money primarily went into these three sets of people’s pockets,” limiting market gains. ### Key Concerns for Investors When asked about his biggest worry, Naren highlighted the uncertain long‑term impact of AI on the Indian economy. “At some point the war will end and oil will come down,” he said, adding that “AI can be a structural trend, but we don’t know its long‑term effect.” He also discussed the potential for India to become a $20‑trillion economy in the next two decades. While services remain a competitive advantage, manufacturing faces stiff competition from Vietnam and Thailand. “We need to create manufacturing employment on a very large scale,” he said, noting that the government is aware of this challenge. ### Sectors to Watch Assuming a resolution of the US‑Iran conflict, Naren pointed to banking, oil marketing, and aviation as sectors likely to benefit from lower oil prices and a stronger rupee. He cautioned that continued rate hikes could persist if oil remains high, but a sharp decline in oil would reduce the Reserve Bank of India’s need to keep rates elevated. ### Domestic Economic Outlook Naren said that the current account deficit and fiscal deficit are under control, and credit growth is robust. The automotive sector and power demand have been strong, but a subpar monsoon and potential El Niño conditions pose risks. He noted that the RBI’s floating of an FCNR scheme has attracted $127 billion in deposits, helping to address near‑term foreign exchange concerns. ### Asset Allocation Advice Given the uncertainty, Naren stressed the importance of disciplined asset allocation. He suggested that investors maintain exposure to three broad categories of mutual‑fund schemes: 1. Balanced Advantage – A dynamic strategy that increases equity exposure when markets rise and reduces it when markets fall. 2. Balanced Hybrid – A fixed‑ratio approach that keeps equity and debt allocations between 40 % and 60 % each. 3. Flexi‑Cap – An unconstrained equity fund that invests across large, mid, small, and micro caps. He added that a multi‑asset fund could serve investors who also want exposure to gold. ### Bottom Line The Sensex’s prolonged stagnation reflects a combination of overvaluation, geopolitical risk, and capital outflows to IPOs and foreign investors. While AI presents an uncertain long‑term driver, sectors such as banking, oil marketing, and aviation may offer upside if oil prices fall. Naren’s advice underscores the value of a diversified, disciplined approach to asset allocation in navigating the current market environment.
Article source: Indian Express | Image credit: Indian Express