Equity Markets: A Flattish year with devil in the details.

We present a summary of changes in key Indian & Global equity indices.

While Nifty and Midcap's indices were flat for the year, Small cap indices are down 14%. India outperformed most global markets for the year.

Significant outperformance across sectors was observed in the Consumption space (staples and discretionary), followed by Banks. Technology, Real Estate and Commodities performed worst for the financial year.

Duration Nifty 50 Nifty Midcap 100 Nifty Small Cap 100 Dow Jones Indus. Avg S&P 500 Index Nasdaq Composite Index
1 Month 0.3% -0.3% -1.8% 1.9% 3.5% 6.7%
1 Year -0.6% 1.2% -13.8% -4.0% -9.3% -14.1%

Source: Bloomberg Performance - Absolute returns | Data as on March 31st, 2023.

Duration Nifty FMCG Nifty Auto Nifty Bank Nifty Financial Services Nifty Commodities Nifty Pharma Nifty Energy Nifty Metal Nifty Realty Nifty IT Nifty Media
1 Month 2.1% -3.8% 0.8% 0.4% 3.4% 2.3% 5.2% 4.3% -1.5% -3.3% -0.3%
1 Year 26.5% 16.0% 11.6% 5.3% -7.4% -11.5% -11.6% -14.4% -16.4% -21.0% -28.6%

Source: Bloomberg Performance - Absolute returns | Data as on March 31st, 2023.

We wish each of our investors a "Very Happy & Wealthy New Financial Year 2023-24". While FY23 may not offer a great reading on equity returns from Indian markets, one needs to see the big picture. FY23 was hurt by;

  • Economic headwinds on global and domestic fronts; Russia-Ukraine war, energy prices, a hawkish monetary policy of both the US Fed (450 bps hike) and the RBI (250 bps hike).
  • Markets consolidating on the back of 2 great years of equity market returns.
  • Huge FPI selling of approx. 30bn$ for the year. Despite the quantum of selling, flat markets convey a healthy role domestic investors play in buying for the long term.

As we review what lies ahead for the financial markets in FY24, an apt summary could be the recent tweet by Bloomberg columnist Daniel Moss "It's still the Fed's world. We just live in it". History shows that financial markets move with investor sentiments influenced by Fundamentals (long-term, economic growth etc.) &/or Liquidity (short-term, monetary policy etc)

For March 2023, Indian markets trended most of the month downwards, but the sharp rally in the last 2-3 trading days helped close on a flattish note. Sector-wise, Energy, Metals, FMCG, Pharma & Financials outperformed, while Auto, IT & Realty underperformed Nifty. Globally, the markets had sharp swings, with the interest rate and ALM issues in some US banks dominating the fundamentals, as higher rates impacted the viability of these banks.

The sentiments, however, changed for the better as the feeling of the Fed being forced to review the monetary policy stance dominated investor moods. US stocks had a nice rally post the Fed policy meeting, where it raised rates by 25 bps.

The NASDAQ led the rally in US stocks as investors bet on the Fed pivot. CY22 had seen NASDAQ correct by 33% as an increase in rates hit valuations of the tech sector.

While the Indian market has a connection with Fed policy (global sentiments, risk appetite, asset allocations, valuations etc.), the Indian economy has a direct connection with RBI's monetary policy.

RBI's stance impacts the cost and availability of money, which affects economic activities & GDP growth and the distribution of profit pool across sectors. RBI policy has been in a similar direction with Fed in the last three years, and we expect that linkage to continue when Fed moves to a stance of no more hikes or actual easing.

While the fundamental change in RBI's view will be known over the next 2-3 policy meets, we expect the economic growth to increase and corporate India's profit pool share to change as corporate borrowers get more comfort on interest costs.

Looking Ahead

If the Fed policy connects remain relevant in the short term, the economic growth and fundamentals remain in the medium and long time. The real story for India remains the rapid growth potential that moves the Indian economy towards the 3rd largest economy status.

This decade is expected to be India's story of economic growth with the building blocks (public sector infrastructure creation, private sector's industrial capex, compliance-led tax collection efficiency, PLI initiatives led job creation & China+1 strategy to get export market share) in place for the big leap forward.

India markets have had a time correction of 18 months. Indian markets look better on absolute valuations and a relative basis when compared to other emerging markets, especially China, post their Covid open-up rally.

The key issue impacting markets is the continuous selling by FPIs. While FY23 showed Indian investors' ability and willingness to buy, we need to see how FY24 plays out on demand and supply market dynamics, especially in the context of higher interest rates that can influence asset allocation.

We have witnessed constant sector rotation playing out in cycles of 6 months at max, with broad market indices remaining unchanged. This is partly a case of economy normalising and excessive leverage in markets where investors have turned traders for quick gains by taking recourse to leverage.

When in such a consolidation mode, markets offer stock selection opportunities over sectors. Companies with earning resilience and cash flows could be better investment opportunities at present.

Historically we have seen that markets when in consolidation, are a perfect case of buying equities as an asset class. When investing over a 3-5-7 years timeframe, Large, Mid & Small as a category may give reasonably similar returns, especially when considering associated volatility. However, if investors believe in fund managers' ability to move within large, mid and small-cap segments, then Flexi Cap and Focused funds could be considered.

Scheme strategy - Equity Schemes
  • Mahindra Manulife Multi Cap Fund
  • Mahindra Manulife Mid Cap Fund
    • This scheme would aim to invest in companies that demonstrate higher earnings growth outlook, potential of rerating or sectoral leadership position which can take advantage of the India’s growth story. The portfolio will invest predominantly in mid-cap stocks (>65%) apart from some exposure to small and large-cap stocks. The portfolio will have a mix of top-down and bottom-up approach to investing.
  • Mahindra Manulife ELSS Fund
    • The portfolio has allocation to stocks across market capitalization and may focus on companies that have the power to take advantage of the opportunities the economy offers. The stocks in the portfolio are likely to have a superior product line, manageable debt and leadership in their respective sectors.
  • Mahindra Manulife Flexi Cap Fund
    • The Scheme follows top-down sector allocation and bottom up stock selection ideas that may benefit based on health of economy. Allocation across marketcaps is a function of economic outlook, domestic liquidity and stage of market cycle. Focus will be on high quality, growth focused companies available at reasonable valuations.
  • Mahindra Manulife Consumption Fund
    • The portfolio is a thematic fund and aims to invest in companies which are expected to benefit from consumption led demand. Allocation will be across market caps and focus to invest in growth-oriented companies with strong financial strength available at reasonable valuations. Companies engaged in consumption and related sectors will have allocation of more than 80% in the portfolio.
  • Mahindra Manulife Large Cap Fund
    • The portfolio is a concentrated portfolio with a top-down approach adopted to identify sectors with potential across different periods based on emerging macro trends. In addition, a bottom-up stock selection would also be followed, to identify companies with earnings growth potential, strong balance sheet and good governance.
  • Mahindra Manulife Large & Mid Cap Fund
    • The scheme focusses on investing in companies that have demonstrated strong leadership and sustained growth and continue to do so. The portfolio currently has around 51%,36% and 11% of net equity holdings in large, mid, and small cap respectively.
  • Mahindra Manulife Focused Fund

      The Scheme focuses on maintaining an appropriate diversified portfolio of companies with a medium-term perspective. The Scheme follows a top-down approach to select sectors and a bottom-up approach to pick stocks across the sectors based on the quality of business model and quality of management. Quality of business model and quality of management will be assessed by evaluating past track record and/or future outlook. The selection of companies will be guided by a combination of one or more factors like:

      1. Growth opportunities
      2. Cash flows generated and ability to finance the growth.
      3. Management quality to deliver the growth.
  • Mahindra Manulife Small Cap Fund
    • This scheme aims to invest in companies that demonstrate reasonable earnings growth outlook, balance sheet strength and a potential of rerating. The portfolio invests predominantly in small cap stocks (>65%) apart from some exposure to mid and large-cap stocks. The portfolio will be adopting predominantly bottom-up approach to investing.
Scheme strategy - Hybrid Schemes
  • Mahindra Manulife Equity Savings Fund


    • Portfolio composition would have preference for growth style of investing
    • Bottom-up approach would be adopted to identify companies that have ability to scale up, gain market share and/or are present in sunrise/high growth sectors
  • Mahindra Manulife Aggressive Hybrid Fund


    • Macro theme of the portfolio will be to identify the status of economy and invest in sectors with potential to outperform
    • Portfolio composition would have preference for companies with potential for earnings upgrade and possible valuation upgrades as well


    • The Modified duration of the portfolio is around 2.58 years for the debt portion
    • We have now a larger allocation to gilts than credits and may maintain this stance in the near future
  • Mahindra Manulife Balanced Advantage Fund


    • Portfolio composition would have preference for growth style of investing with large cap bias
    • Bottom-up approach would be adopted to identify companies that have ability to scale up, gain market share and/or are present in sunrise/high growth sectors


    • The Modified duration of the portfolio is around 2.69 years for the debt portion
    • The duration is built through exposure in 10-year/5-year Gilt