Market could be on cusp of trend reversal; business cycle funds suitable for capturing sector opportunities, say experts

As geopolitical tensions ease, crude oil prices fall, and the outlook for economic growth improves, the Indian stock market could be on the cusp of a trend reversal.

Experts appear positive about the Indian stock market as they believe this is the right time to buy the dips. However, they also caution that confining investments to a narrow set of themes may be risky, and therefore, one should focus more on business cycle funds.

Changing market dynamics tend to change sectoral leadership, which makes it challenging for common retail investors to identify the right sector at the right time.

Unlike sectoral or thematic funds that concentrate investments in a single theme, business cycle funds have the flexibility to dynamically allocate capital across sectors and industries that are expected to benefit from different stages of the economic cycle.

"Business cycle funds offer investors a convenient way to participate in changing market and economic trends. The fund manager actively adjusts sector allocations as industries move through different phases of the business cycle, supported by disciplined stock selection," said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

"Investors with a relatively higher risk appetite may find these funds suitable as they can help them effectively diversify their investments while capturing opportunities across sectors amid evolving market and economic situations," said Vijayakumar.

As per DD Sharma, MD of MF King, quartile rankings are particularly relevant in the business cycle fund category, where success depends on timely sector allocation, portfolio agility and disciplined stock selection. The performance underscores the fund management team's ability to dynamically position the portfolio across sectors that are expected to benefit from different stages of the economic cycle.

Sharma added that for investors, this offers an important advantage.

"Rather than attempting to identify the next winning sector or maintaining multiple sector fund exposures, a business cycle fund enables participation in evolving market opportunities through a professionally managed and diversified portfolio. The category provides a compelling solution for investors looking to benefit from India's evolving economic story," said Sharma.

Several business cycle funds have delivered strong risk-adjusted returns by effectively navigating market cycles and identifying emerging opportunities across sectors. The category has benefited from India's ongoing economic expansion, manufacturing push, infrastructure investments and increasing domestic consumption.

Mahindra Manulife Business Cycle Fund has delivered consistent first-quartile performance across the 9-month, one-year and two-year periods. According to available data, since its launch on 13 September 2023, the fund has delivered an absolute return of 65%. Its one-year return is 10.5% and three-month return is 9.50%.

The fund has demonstrated the ability to identify opportunities across sectors and adapt its portfolio based on changing market conditions. Through a disciplined investment framework and active management approach, the fund seeks to capitalise on sectors and businesses positioned to benefit from evolving economic trends.

Axis Business Cycles Fund, Aditya Birla Sun Life Business Cycle Fund, and Kotak Business Cycle Fund are also among the top-performing business cycle funds.

Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

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