The markets turned volatile after hitting multiple peaks earlier this month as the June quarter results of some major companies disappointed the Street. In an interview with Business Standard, Naveen Kulkarni, chief investment officer at Axis Securities PMS, noted the market is ignoring serious risks that have a decent probability of materialising.
"The up-move was not surprising, but the movement has been sharper than our expectations. This generally happens in equity markets as these swings are more than expected. In the last year, market valuations were reasonable, and we assessed that risk-taking will be rewarded whenever the upswing happens. This strategy has worked well for us," he stated in the interview.
He also pointed out that the risk-reward is not unfavourable at the current juncture, but definitely not highly favourable and most investors now expect a market correction. However, this has not been happening due to consistent inflows from foreign institutional investors (FIIs), he said.
He believes going ahead, some correction in the market could happen, but it may not be very significant. Therefore, investors willing to sacrifice some upside and looking at 10-12 percent returns over the next 12 months can still look at investing, as timing the market has become difficult in this environment, Kulkarni highlighted.
While the chances of significant correction are low, the market is exposed to political risks over the next 12 months. Also, the chances of global recession have been largely ignored now, he added.
He also said that now valuations have moved up, and corporate earnings over the next 12 months must justify these valuations. Thus, the market’s focus has clearly shifted to corporate earnings growth, backed by comfort in valuations, added the expert. “In this scenario, our strategy is shifting towards growth at a reasonable price (GARP) from the earlier stance of value backed by quality,” he recommended.
The expert further said that his focus now is looking for companies with sustainability earnings and GARP. Also, the focus on mid-and smallcaps will continue over the medium term. To some extent, returns have been front-loaded in FY24, but to sustain the returns, companies will have to deliver on operating performance. Thus, the strategy is to manage tail risk better while managing portfolio earnings growth, he suggested.
