Harsha Upadhyaya, President and Chief Investment Officer – Equity at Kotak Mahindra Asset Management Company, said valuation risk in equities has been reduced considerably but the market may still remain volatile and rangebound until clear visibility on improvement in corporate earnings growth trajectory is available.
In an interview with MintGenie, Upadhyaya shared his views on the market and what investors should do.
Markets had a tough FY23. Are the worst behind us or should we prepare for more negative surprises in the next financial year?
The global economy and markets continue to be in a fragile state. With inflation still being higher than interest rates in most economies, rate actions are likely to be continued by most central banks to reign in inflation.
The geopolitical situation continues to be similar to the previous year’s. In all, we expect even the domestic equity market to be volatile at least in the immediate term, although our economy continues to be more resilient as compared to the global ones.
The current time is perhaps a great opportunity for long-term investors. But what should short-term investors do? Should they stay away from equities for the next few months?
Short-term investors should always ideally avoid equities, as equity markets can be more unpredictable and volatile in a shorter period. Arbitrage funds and fixed-income funds could be explored by such investors.
What returns do you expect from equities over the next two-three years? What are the key challenges?
As current valuations are fair, one can expect market returns to track earnings growth over the medium term. The consensus expectations for earnings growth over the next two financial years are in the region of mid-teens.
Are you concerned about the current valuation of the Indian market?
After over one and a half years of sideways and range-bound movement, the equity valuations are back in the fair zone once again. To that extent, the valuation risk in equities has reduced considerably. However, the market may still remain volatile and rangebound until clear visibility on improvement in corporate earnings growth trajectory is available.
What sectors one should invest in at this juncture? Should they focus on defensives or do cyclicals have a chance?
We at Kotak Mutual Fund, have been preferring domestic businesses over export-oriented/global-facing businesses as the domestic economy is expected to be far more resilient than the global economy. We remain positive on sectors such as Banking, Auto, Cement and Industrials from a medium-term perspective.
When do you expect the Fed to take a pause on rate hikes?
There is a strong possibility of at least one more hike despite the current banking crisis. It cannot be said whether the Fed will take a pause after that as it will depend on upcoming inflation prints. Fed is expected to remain data-dependent for rate hikes.
When do you expect a trend reversal in the market?
I can't give you the timeline as there is much uncertainty at the moment. It will be a rangebound market for the short term as there are no real positives.
Disclaimer: The views and recommendations given in this article are those of the expert. These do not represent the views of MintGenie.