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Despite the markets hovering around the all-time-high, investors can expect a return of around 11% CAGR if they remain invested for 10 years, said Vinod Bhat of Aditya Birla Sun Life Mutual Fund (ABSL MF), citing a study done by the fund house.
"We did an analysis to figure out the returns post the previous peaks. In the short-term, it's very tough to predict but in the 10-year time frame, investments made during the all-time-high phase have delivered a return of around 11.5%," he said at the Cafemutual Ideas Fest 2022.
Based on the above finding, Bhat said MFDs should ask their clients not to worry about the valuations and remain invested. "Now that there is a correction, the returns can be expected to even higher than 11%," he said.
'Focus on earnings'
Markets are a slave to earnings and that is one aspect investors should focus on. It is very difficult to get a handle on other factors like liquidity, interest rates and investor sentiment, the portfolio manager and equity strategist at ABSL MF said.
What factors drive valuations?
According to Bhat, growth in earnings, liquidity, change in index composition and interest rates are the key factors that determine valuations.
In the presentation, Bhat laid special emphasis on index composition. "The composition of index is changing and this why we are seeing a rise in PE of Nifty. We need to understand what's changing beneath the surface. Over time, a lot of IT, banks and financial services have made it to indices. As they are high PE companies, the PE of Nifty has also got elevated," he said.
