Amidst a backdrop of rising geopolitical tensions and expectations of higher interest rates, mutual funds have demonstrated confidence in the Indian market by investing heavily in blue-chip stocks such as ICICI Bank Ltd during October 2023. This investment surge comes despite the market's volatility and ahead of India's national elections set for 2024, which are expected to cause disruptions in certain sectors like automobiles.
Despite these potential headwinds, brokerages have been optimistic about the performance of large firms, predicting they will outperform smaller companies in the second half of the financial year. This sentiment is bolstered by Morgan Stanley (NYSE:MS)'s prediction that the Sensex, a key stock market index, could reach a level of 74,000 by December 2024. The forecast reflects a positive outlook on India's growth prospects and a belief in the country's economic resilience.
Contributing to this positive sentiment, Goldman Sachs (NYSE:GS) upgraded India to "Overweight," citing robust growth driven by strong domestic demand and continued mutual fund inflows. This upgrade is supported by the significant interest from foreign investors observed between April and September 2023, which resulted in a 12% increase in both the Sensex and Nifty indexes.
In contrast to this positive trend, mutual funds have also made strategic divestments from public sector companies, withdrawing nearly ₹2,700 crore (INR100 crore = approx. USD12 million). However, they balanced these divestments with fresh investments in newly listed entities like Honsa Consumer Ltd., indicating a selective approach to portfolio management that favors new market entrants and established blue-chip stocks alike.
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