“In our opinion, there is merit in increasing allocation to equities in a phased manner or in staying invested as the case may be,” the mutual fund said in its monthly review.
The AMC said that Nifty50 is currently trading at 21 times one-year forward earnings, which is “reasonable, especially, given low interest rate environment and optimism on economic recovery”.
HDFC MF argued that the impact of the second Covid-19 wave in India will be fairly limited and short lived in the majority of the sectors.
India has reported over 300,000 new cases daily for the past few weeks and has become the epicenter of the global pandemic. The ongoing healthcare crisis has seen nearly two-third of the economy being placed under some form of restrictions.
The localized restrictions have meant that business resumption metrics have fallen to their lowest levels since June, right after the national lockdown was lifted.
“Large players in financial services are likely to do well as they are gaining share, provisioning costs are likely to fall and technology is making them more competitive. Further, large players in global cyclicals like metals, oil and gas are not materially impacted due to local conditions,” the mutual fund said.
The mutual fund’s optimism is based on the assumption that current economic pain won’t intensify going ahead. The company, however, warned that a significant rise in the spread of Covid-19, unwinding of expansionary fiscal and monetary stimulus, significant rise in crude oil prices, and higher-than-expected bad loans are key risks in the near term.