Dear Advisory Client,
The 5 year mandate to the NDA government takes out political risks from the markets but given a faltering economy, equities will continue to witness a narrow rather than a broad based market, where focus will be on a few stocks.
We had designed our 2024 portfolio to ride out the economic weakness and also the uncertainty caused by elections. The portfolio is now looking strong as the companies in our portfolio are debt free, gaining market share and are largely market leaders.
In an economic downturn, stock prices do correct as lower demand filters into earnings. However, the companies that steadily gain market share where competition finds it tough to sustain in a weak market, reap the benefits when there is an upturn in demand.
Unless a sector is completely disrupted by innovation/ technology/change in consumer preferences, demand comes back when consumers gain confidence. The government does have its challenges at present, but given a 5 year tenure, the challenges can be overcome through firm and decisive actions.
We see a one year period for the economy to get back on track and this is a good period to build and consolidate your portfolios. It is better to stay in fundamentally strong stocks with visibility of growth and improvement in market share. Volatility is not ruled out given multiple domestic and global issues and a good portfolio will give you peace of mind despite volatility.
The last one year has definitely been a volatile ride even for the best of portfolios, as even market leaders have lost substantial value due to falling demand. A credit crisis in the NBFC sector has further weakened demand. However, political risk going out is a huge relief for markets, which can now focus on fundamentals.