The markets had run up quite a bit after the Lok Sabha election results last year. The recent correction on the back of global issues and a few disappointments on the reforms front have brought down valuations to more reasonable levels.
Domestically, we are keenly watching various initiatives being undertaken by the government on the policy and reforms front as we believe this is going to be the single most important factor for our markets. Corporate earnings are currently subdued due to lack of demand momentum. With a likely improvement in the overall economy, we expect demand outlook to pick up going forward which will drive corporate earnings. The fall in the commodity prices have been beneficial on the raw materials front. Globally, U.S. interest rates and Chinese currency are two important factors to keep a close eye on as it has the potential to create global volatility.
Currently, the market is trading at the long term average multiple on a one year forward earnings basis and hence is not expensive. We are quite positive on the Indian equities with a long term view, given the reforms oriented government at the centre. Given the expected pick up in the reforms and GDP growth coupled with falling interest rate, we remain positive on sectors like private sector banks, automobiles, consumer durables, oil marketing companies, and capital goods sectors.
In the present scenario where the equity markets have exhibited quite a bit of volatility, investors should concentrate on stock selection and high quality names that have the potential to outperform over different market cycles. The DSP BlackRock Focus 25 Fund has given 11% compounded annual returns since its inception a little over five years ago in 2010. The portfolio has a large cap focus with about 80% allocation to large cap companies and flexibility to invest a small portion in mid and small caps on a tactical basis. DSP BlackRock Focus 25 Fund has been a strong performer and has delivered 20% compounded annual returns over the past three years, outperforming its benchmark by a large margin which generated 14% returns during the same period.
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