Transcript
DJ: Hello and welcome my name is Dheeraj Juneja and with me today is Shibani Kurian fund manager and head equity research with Kotak Mahindra Asset Management Company Limited and we are here to discuss the equity Market Outlook for the month of September. Hi Shibani.
SK: Hi Dheeraj and hi to all our viewers as well.
DJ: First up, we have seen that the markets have been quite strong recently. According to you what is lending to this strength and what could be the next few triggers
SK: So absolutely, Indian markets have been strong and resilient. A few factors we must keep in mind – one, our macro perspective continues to remain strong in the global context. Secondly, earnings delivery has also panned out pretty much in line with estimates. Q1 was a somewhat muted quarter but estimates itself were muted. If you look at FY25 and FY26, consensus earnings estimates still hold strong at about 15-16% earnings growth. Now for that earnings growth to pan out for FY25 we would need to see pickup in terms of trajectory of earnings going ahead specifically in the second half of the year which coincides also with the festive season
Now when you look at valuations large caps are trading at a multiple which is higher than its long-term averages so about 15-16% premium. Mid and small caps are trading at about 40 to 50% premium to their long-term average history so risk reward continues to be in favour of large caps. Mid and small caps our overall position positioning has been to look at stocks more bottom up in nature. Look at stocks where valuations are still reasonable in context of earnings and avoid stocks or segments where the free float is low and multiples have rated far in excess of the earnings growth.
Now in the market context we must also remember that there are a few key Global events. There is geopolitical risk and secondly, now it is quite evident that the FED will start its rate cut cycle maybe as early as September and therefore we’ll have to wait and see what RBI does in that context.
So today when you look at the overall market construct, given that our markets have done very well in the relative Emerging Market pack there is some possibility that we see some near-term volatility as we navigate some of these events. However, on the contrary, I would say that given our strong macro and earnings trajectory all of that lends support to the market so even if there is volatility, we do not expect to see a major draw down in the markets at this point in time
DJ: All right so which sectors that you would look at right now.
SK: So from our portfolio one theme that we have been very positive on for a while has been the entire manufacturing Industrials and infrastructure space. We continue to be positive there however again this segment has done reasonably well over the last few years and therefore valuations have caught up and hence In pockets where valuations are looking extremely expensive we have taken some profits off the table.
Now when you look at the sectors there are three sectors where valuations are reasonable in the context of where we are today of the first is the consumer space where we believe valuations in comparison to its own history are reasonable. There are signs of pickup in the rural segment as well as in the mass-market segment and of course monsoons have been good so that lends to this entire demand revival on the rural space. We’ll have to watch for the festive season in October-November in order to see how much room this leg has so the consumption space is one segment where we are positive.
Incrementally we are also looking at the technology space, specifically the large cap IT sector, where again valuations are reasonable. If the FED starts cutting rates and the macro holds up in the US a lot of the discretionary spends which were absent for a long period of time can come back and lending to growth where technology is concerned specifically the large cap Tech.
The third sector is the banking space. Here again, valuations are extremely reasonable as compared to its long-term history. There are some near-term hiccups that the sector will have to navigate including pressure on margins – deposit growth being lower than credit growth and the possible LCR or liquidity coverage ratio guidelines which may impact margins. However, a lot of that is getting factored into valuations and therefore we are keeping a pretty close watch on the sector as well. And the fourth sector if I may add is the chemical space. Again, we are keeping a close watch here expecting some amount of demand revival towards the second half of FY25.
DJ: And lastly your advice to the Equity Fund holders
SK: So I think first and foremost, stay disciplined in your approach to investing. Keep a view in terms of your asset allocation strategy and risk profile. SIPs continue to be the best way to invest into Equity markets and that’s something that I keep saying to all our investors.
When you look at the markets today in terms of valuations and earnings, as we were discussing, our view is that in terms of the overall asset allocation Equity should be somewhat neutral we would recommend our investors to be a little overweight on large cap, slightly underweight on mid and small cap from an asset allocation perspective. Most importantly, stay disciplined and stay invested.
DJ: Well that was quite insightful thank you Shibani for your time
SK: Thank you very much my pleasure. Thank you for your time and stay tuned to Kotak Mutual Fund.
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