Equity markets took comfort from the declining covid infections and acceleration in the vaccination drive. Markets are already factoring in improvement in economic data and pent up demand to some extent as the unlocking takes shape.
What to expect
Harsha Upadhyaya, President & Chief Investment Officer - Equity, Kotak Mahindra MF
- Overall, market sentiments in the near term will be driven largely by covid-19 trajectory, earnings of June 21 quarter and domestic & foreign flows
- Currently, there seem to be no major concerns around the market participation of foreign institutional investors and domestic institutional investors
- From the lows of 2020, large, mid and small caps have delivered a significant performance and are trading at relatively higher valuations. The nifty index is trading at around 22x FY21 earnings which is higher than the 10-year average valuation
- From 2018 to the lows of 2020, mid and small cap were at a significant discount compared to large cap. However, the current times have seen this discount reduce
George Heber Joseph, CEO and CIO, ITI MF
- Delivery of expected earnings growth will be important factors for markets
- Markets have taken the impact of covid second wave on corporate earnings
- There will be a good rebound in sales and earnings from the second quarter of current financial year
- The other big factor is the action of the Central banks both in India and overseas, as low interest rates and adequate liquidity have played a key role in the current market rally
- From a medium term, more returns are likely from mid and small cap segments
Neelotpal Sahai - Head of Equities, HSBC MF
- Vaccination pace, third wave concerns, corporate earnings trajectory, global & domestic inflation trends and commodity prices (especially crude oil) could influence short term performance
- Quarterly earnings season is expected to be weak but the markets are assuming this to be a one-off impact and expect a strong recovery in earnings in the coming months. Trend contrary to this could potentially surprise markets
- Market valuations are trending above historical averages on traditional valuation metrics (P/E, P/B) across large, mid and small cap
- Valuations should also be looked at in the context of earnings expectations over the next two years. The earnings growth estimates for mid and small cap are significantly higher compared to large cap
Sorbh Gupta- Fund Manager - Equity, Quantum MF
- Likelihood of covid-19 third wave, another economic lockdown, corporate earnings in June 21 quarter and management commentary on demand & raw material inflation are the major triggers currently
- The benchmark BSE S&P Sensex is trading at close to 22.6x FY22 consensus earnings, while the long term average PE is close to 18x. So, Sensex is trading at a premium relative to its history. Mid caps and small caps appear even more expensive
- Markets are heterogeneous and active managers can find pockets of undervaluation to create a portfolio with a reasonable margin of safety with a long term perspective
Commentary on sectors
Harsha Upadhyaya
Cyclical sectors such as banking, cement, industrial and metal can provide positive earnings surprise if the economy normalises without further disruptions. IT and pharma may be considered for a defensive investment strategy
George Heber Joseph
Bullish on sectors geared to economic and capex revival such as capital goods and industrials, infrastructure, cement, real estate and corporate/MSME focused banks. In the near term, auto sector looks interesting after their underperformance over the last year
Neelotpal Sahai
Ppositive on financial, cement, chemical and healthcare sectors
Sorbh Gupta
Cyclical like financial and commodities are expected to see most earning upgrades. We also remain constructive on consumer discretionary specifically rural focussed ones and two-wheelers manufacturers. Technology stocks are a good play on global economic recovery
What to recommend
Harsha Upadhyaya
A diversified approach especially given the higher valuations across market caps is recommended
George Heber Joseph
Lumpsum investments should be made in multi cap or balanced advantage funds. However, over the next three to five years, we feel maximum returns would come from small cap followed by mid caps. Investors should invest in small cap or mid cap funds using SIP/ STP routes and await better entry points for lumpsum investments
Neelotpal Sahai
Investors with a lower risk appetite can consider aggressive hybrid or large cap funds. Flexi-cap/mid or small cap funds can be considered for a higher risk appetite along with a longer investment horizon
Sorbh Gupta
Investors should create a well spread out basket of equity funds - 20% in a well-managed value fund, 70% in a diversified fund and 10% can be allocated towards thematic funds like ESG
