Better prospects for equity funds in 2015

When we look at 2014 in retrospect, it can be said that this was a year when the Indian economy was slowly but surely getting back on its feet. 2014 was also marked with a great political change at the helm, that was looked upon as a positive by the market.

Though in the recent monetary policy review the RBI kept the rates unchanged, the market cheered about the fact that inflation dropped to 4.38% in November 2014, as compared to RBIs expectations of 6% in January 2015. With inflation that seems to be firmly under control the markets are expecting an early start to the rate cut cycle by RBI beginning 2015. This should bring in further cheer to the equity markets and the debt market as well.

The other reason to make merry in 2014, was the drop in the prices of crude. With crude prices languishing at $ 62 a barrel as on Nov 2104, there is expected to be a drop in energy prices, which in turn is going to lower the input cost for the manufacturing sector. Though the recently concluded earnings season was disappointing, the benefits of lower input cost, tempered inflation and overall improving growth prospects for the economy points towards improvement in corporate profitability in the year ahead.

In the year 2014, equity funds had a fairly buoyant run riding on the performance of small and mid cap stocks. Small and mid cap funds were amongst the best performing category. Across equity fund categories, those funds with higher exposure to small and mid cap stocks were the ones that fared better than other equity funds.

Going ahead in 2015, one can surely look forward to exciting times ahead as the economy seems poised for a take off and the market valuations remain broadly reasonable. Beginning in 2015, we could witness growth in EPS of Sensex companies. This may provide several sectoral opportunities to equity fund investors. Sectors such as banking and infrastructure could be particularly benefited.

All these positives notwithstanding, one cannot ignore the fact that the share of equity allocation in Indian household savings stand at a mere 2.3%. This is clearly indicative of the fact that retail investors are shying away from equities as an asset class. Investors must realize now that investments into equities through the equity mutual fund route could become an effective saving instrument for them and help them achieve their desired goals over the long term.

An investor planning to get into the equity market through the mutual fund route will do well to check his financial goal and choose the appropriate schemes that are a perfect fit with his future plans and his risk appetite. He must also look at the pedigree of the asset management company, the objectives of the fund and the track record of the fund manager before he makes a selection.

For those who want a slice of equities in their portfolio, the time is indeed ripe, as 2015 has potential to be a good year for the Indian economy. If you have a long term horizon, taking the slow and steady route of systematic investment plans (SIPs) can help you accumulate wealth over the long term.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.