There are various factors for the flat market in 2018 till date. Sentiment in equity has come down a little bit due to imposition of long-term capital gains tax in the Budget. Global volatility has also increased in the last couple of months, primarily due to rising US treasury rates. The general sentiment is that bond rates across geographies are likely to go up. So, the days of ultra-low interest rates are over.

Latest news flows on the trade war is further dampening global sentiment and impacting emerging markets, including India. Domestic macroeconomic scenario has also deteriorated in the last two-three months.

However, the correction seen in the last two-three months is a healthy one because markets were purely in overvalued zone. I think, the next three-four months will give more buying opportunities. In the immediate term, I see the markets trending down or at least they will be flat with a negative bias.

The trend for us is that inflows are still coming but the pace has slowed down substantially. However, one should also note that the huge inflows into mutual funds over the last four to five months were an aberration. Of the total inflows of ?18,000-20,000 crore, part of the flow (?4,000-5,000 crore) was hot money (due to tax differential and no dividend tax). So, the realistic and sustainable inflow was ?10,000-12,000 crore, which is still very healthy inflow. I see this continuing due to lack of other investment avenues for Indian investors.

The answer to the question "will they correct more or less" is like this: When liquidity/market sentiment is down, mid- and small-caps typically tend to underperform. So, that trend will continue.

Overall, mid- and small-cap indices are trading at a premium to the large-caps. But this is because of two factors. First, some stocks, mainly from sectors such as retail or home building, are trading at the upper end of valuation. You also have lot of PSU mid-cap banks which showed losses, thus artificially inflating the PE. But the rest are trading at a reasonable discount to large-caps and are quite favourably poised.

Information technology and pharmaceutical sectors are good value bets and their fundamentals are also improving. I also like regulated utilities (power generation companies) as I believe demand will witness revival in the next three-four years as India’s gross domestic product trends up and, in turn, industrial growth picks up, thus, leading to improved utilisation and higher operating leverage. Valuations are very reasonable, both in terms of price-to-book or price-to-earnings.

I am also positive on the realty sector. Post RERA and demonetisation, I see huge amount of supply shrinking and a number of unorganised players moving out of the market. Stock prices ran up but that happened from a very low base of demonetisation. From a longer term perspective, they still look very attractive.

In the last couple of years, something or the other has been happening (demonestisation in FY17, GST in FY18). So, we have had a low base or almost no earnings growth in last three-four years. The base is behind us now. There is nothing on the anvil, which stops us from saying that we will not have mid-teen earnings growth. It could be even higher.

Thus, I expect 15 per cent earnings growth for the benchmark index, provided no big and disrupting event takes place next year. We expect both domestic consumption and investment (big focus on infrastructure) to do well.

I prefer private sector banks and within that corporate-oriented private banks. I find their valuations reasonable. Public sector banks are a clear avoid to serious investors in the current scenario though they could be good trading bets.

I like dynamic asset allocation fund. It will do very well in a dynamic environment and huge volatility. It has not done as well in the last one year because the key success factor is high volatility. In our case it is called wealth builder fund.

We are currently around 45 per cent net equity. We have been able to ride the volatility because we have been low equity till now. If markets go down further we would be able to put more equity gradually as the market goes down and ensure the best for the investors.

 13 Mar 2018, 02:32 PM