Where to invest in mutual funds? ICICI MF, Tata MF, Mirae Asset, Trust MF bullish on these themes for next 3 years

Over the last three years, sectoral mutual funds have shown impressive performance. Consider this: PSU funds, on average, have provided investors with an annualised return of over 45% since January 2021. Similarly, infrastructure funds have surged, delivering an annual growth of more than 33% during the corresponding period. The question now arises: will the sustained outperformance in sectoral funds persist, and which sectors are poised to offer substantial returns to investors in the future?

In an interaction with Business Today, Vrijesh Kasera, Fund Manager, Mirae Asset Investment Managers (India), said that banking, pharma and housing are expected to do well. Banking as a sector is in a cyclical upturn supported by factors like - credit growth and improvement in asset quality which may remain favourable going ahead while the valuations are trading at reasonable levels in context to the long-term average.

“Different segments within the pharma space are expected to do well driven by cost optimisation and quality advantage in the global markets as well as a resilient domestic market. Most of the headwinds in the pharma space are largely behind and post-COVID, we expect healthcare spending to increase. Housing or the real estate sector is another sector that is in a cyclical upturn driven by robust demand as reflected in retail sales which are at 8-year high and residential inventory levels which are at a decade-low level. Investors should consider these funds for longer time horizon,” Kasera said.

Data available with Value Research showed that on average, pharma funds delivered nearly 17% annualized return to investors. On the other hand, banking funds gained 15.12% during the same period.

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Anish Tawakley, Deputy CIO–Equity, ICICI Prudential AMC prefers domestic cyclical sectors that are expected to see a significant swing in a recovery. These include industrial and capital goods, cement, automobiles, insurance and asset management companies.

On the other hand, Mihir Vora-CIO Trust MF believes that the domestic economy will do better than the global economy. Therefore, he prefers sectors which will benefit from domestic investments and consumption. The broad theme is that of physical asset creation for infrastructure, manufacturing and real estate.

Vora further said that government spending on infrastructure will continue at a good pace which should be backed up by the private sector investment cycle picking up. “So we are talking about sectors like capital goods, construction, infrastructure assets, utilities, power, renewables, defence, railways. Within consumption, we are looking for signs of pick up in the discretionary space like automobiles, paints and retailing,” he said.

Tata Mutual Funds’ Senior Fund Manager Chandraprakash Padiyar advised investors to allocate a large part of their wealth towards diversified funds like Large & Mid Cap Funds, Flexicap Funds, Multicap Funds. For sectoral investors, he advised investors to consider banking, housing including real estate, infrastructure and manufacturing sectors where risk-reward is better at the current moment for the next 2-3 years. “The key reason is the prospect of consistent growth in earnings and scalability that these sectors offer along with reasonable valuation,” Padiyar said.

Commenting on PSUs, Padiyar added that the sector used to trade as value stocks given the history of weak earnings and balance sheets. Over the past few years, both earnings and balance sheets have seen a marked improvement and hence stock prices are trading at much higher levels. “In terms of future trends, we believe most of the PSU stocks currently trade higher than their private peers and even relative to its own long-term historical valuation bands. One needs to be very selective for future potential going ahead,” he said.

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