2019-The Year of Two Halves

The year 2018 will be remembered for both sharp surges and drastic declines. We saw BSE Sensex touching new high of almost 39,000 before correcting by almost 15 per cent. This was the second time within a year when the frontline indices fell by more than 10 per cent. The broader indices suffered more losses. This resulted in large-cap dedicated funds outperforming other categories of fu nds. In this background, what is the expectation for year 2019 and which category of funds present better opportunities?

The year 2019 will be a year of two halves. The first-half will see the run-up to the general election and the market may not find a definitive direction and may remain range-bound. Postelection, however, we may find market going up, irrespective of which party forms the government. This will be primarily driven by improving macroeconomic factors as well as comeback in earnings growth. The traces of both these factors are visible even now.

So which categories are looking most attractive now? The sharp correction in mid-cap and small-cap companies has definitely created opportunities in mid-cap and small-cap funds, which are down by an average of 13% and 19%, respectively, in the last one year. Nevertheless, these are not for the faint-hearted, as in the near term, there would be higher volatility in these categories. However, if you have an investment horizon of more than three years, you can definitely look at the funds from these categories. 

Nonetheless, if you are not sure and are risk-averse, multi-cap funds is a good option for you. A multi-cap fund gives the flexibility to the fund manager to keep switching holdings of the fund between large, mid and small caps, depending on their outlook. This year, multi-cap funds have generated higher returns than the small-cap and mid-cap funds, but lower than the large-cap funds. You can better start with multi-cap funds and can switch the category later once the trend becomes clear.

Happy investing and wishing you all a happy and prosperous new year

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