Sunil Singhania, the founder of Abakkus Asset Manager LLP believes most of the headwinds are turning into tailwinds for the markets now. For example, commodity prices and logistics costs are declining.
"Most of these headwinds are becoming tailwinds. So, for a lot of sectors, raw material prices have come back to normal, energy costs are coming back to normal and, in fact, many sectors are benefitting from the sharp drop in logistics costs," said Singhania in an interview with ET Now.
Singhania highlighted that demand in India continues to remain buoyant and even though there is this small fear of El Nino which might impact monsoons, the winter crop has been good.
"We have had record production of agriculture as per the initial estimates and prices are pretty decent. So, farm income should be very good," he told ET Now, adding that the Indian urban side also seems to present a fairly stable and decent picture.
"We have a very busy marriage season ahead of us. All in all, the Indian economy seems to be in a much better situation," he said.
Singhania believes several factors, such as companies facing margin pressure due to rising raw materials, energy and logistics costs, and sticky inflation in the West are keeping the market nervous.
"Over the last two quarters, companies have been facing headwinds, particularly in terms of margin, have been massive swings in raw material prices which shot up post the Russia-Ukraine issue and then came down sharply. The same thing was seen with energy and also logistics," said Singhania.
"Inflation in the western world seems to be a little bit more sticky than what people made it out to be and on top of it, in India, we had uncertainty about one of the large groups facing some issues in terms of stock prices falling. All in all, it has been a nervous three to six months, where overall on the headline side, markets have not been as bad but broader markets have seen quite a decent correction. It has been a nervous and listless kind of market," Singhania said.
Singhania said the market is in a "yo-yo kind of situation where risk-off and risk-on nowadays happen in like a month rather than 6 months or 12 months which we used to see."
He said after the initial nervousness, the market is heading into a space where good news can outpace the bad news.
He also said that India's huge overvaluation vis-a-vis the world is narrowed to some extent.
"From 21-22 times which we are looking at in the next three-four months, we should be looking at Nifty markets trading at around 16.5 times earnings which are in line with the long-term trajectory and that should be good. On top of it, the world should also stabilise. The headwinds which the world faced in terms of high energy costs, particularly in Europe, led to a lowering of demand and a lot of, again companies going out of production are slowly coming back to semblance," said Singhania.
"A mix of global markets and economy stabilising, Indian earnings coming back to normalcy for broader sectors and also flows turning positive, they all should basically aid and the fact that valuations are now not as expensive should also lead to stability and an up move returning back to the Indian markets," Singhania added.
Disclaimer: This article is based on an ET Now interview. The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
