The Indian markets are trading at a 15-20 percent premium despite a time correction in 2022 and the next year could see further consolidation, says Ajay Tyagi, Head of Equities, UTI AMC in an interview with Business Standard.
Tyagi noted that normally, markets consolidate in such situations and rightfully so. Moreover, global GDP growth is likely to be poor and this may negatively impact our growth, he added. To sum up, higher valuations and expectations of 'trend level' earnings growth do not paint a very good picture for the equity market, said the market expert in his interview.
"A year before, the market was trading about 30 percent higher than long-term averages. The one-year forward P/E went as high as 22-23 times. In the past one year, the over-valuation has corrected halfway, but we are yet to reach average valuations," he explained.
Going ahead, Tyagi advised investors that they need to have a relatively diversified basket of funds within equities. "On a market-cap spectrum, we'd want them to allocate to largecap funds, midcap funds and Flexicap schemes. Diversification should also be on the style front so that they do not miss out if one segment of the market does well. By different styles I mean quality, growth, value and a blend in between," he told BS.
He further pointed out that it's rational for investors to cut equity exposure when the markets move up to such levels, especially for those who have stayed invested the past 4-5 years and are sitting on good profits. However, one should not exit equities completely and wait for the market to turn attractive, he added.
Among sectors, he is bullish on private sector banks as they continue to finance consumption in India. From a risk-return perspective, sectors like IT and healthcare are attractive, both in terms of valuation and long-term potential, he added.