Indian stock markets to remain volatile till FY17 end; should you be investing?

As long-term investors, it is time to take advantage of these events to have more than optimal returns on your portfolio.

Events are likely to keep markets volatile for the next six months. Photo: IANS

Last week was very volatile for Indian markets with domestic events like demonetisation and international events like Donald Trump winning US Presidential elections.

As long-term investors, it is time to take advantage of these events to have more than optimal returns on your portfolio.

A FundsIndia research report recommended that those running SIPs (systematic investment plans) on large-cap funds should average out those stocks over the next 6 months. "We think valuations are more reasonable in the large-cap segment, relative to earnings growth, and they afford better upside now," the report said.

Moreover, the report pointed out that though companies have started expanding its revenues in the last couple of quarters, the earnings growth has not kept pace with valuations across market-cap segments.

Out of the 126 companies from the BSE 200 for which the September quarter results were out, sales growth of 5.7% for the quarter ended September 2016 over quarter ended September 2015, and the earnings growth of 10% for the same period was seen.

It may seem like a marginal improvement over previous quarters, however, when this universe is split into those companies with market cap of Rs 20,000 crore and below (midcaps), the picture changes.

"53 of the 126 companies in this lower market cap segment not only saw lower sales growth (2.9%) but saw their net profits fell in the September 2016 quarter compared to the September 2015. The fall may be steep because of banks, but even after removing banks and financial service companies, some of which made losses, the bottom line fell," FundsIndia report said.

Moreover, moving towards the recent passage of Goods and Service Tax bill, the report said that there will not be any significant tax disincentives on issues such as capital gain exemption, the weeks leading to the Budget (expected in early February) may also provide some volatility, especially if FIIs book out.

These events are likely to keep Indian markets volatile for the next six months but present buying opportunities for long-term investors.

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