‘Equity market slave to earnings, not flows’
Sustained buying by MFs has provided a counterbalance to FPI selling, cushioning the market fall. While the record inflows at equity MFs have reduced the vulnerability of Indian equities to overseas hot money, it has created a problem of plenty as valuati
Advice to investors: In the long term, equities should be the preferred asset class for wealth creation. Investors who are underexposed to equity, an SIP (systematic investment plan) or a medium-term systematic transfer plan are the best way to gradually raise their equity allocation. Every individual needs a financial plan and underlying that should be an asset allocation method that would incorporate valuations among other considerations.
“While domestic investors are coming forward, over the longer term, equity market outcomes are slaves to earnings, not 'flows'” ANAND SHAH
equity market outcomes are slaves to earnings, not to “flows”. businesses exposed to discretionary spending in urban India, rural consumption, fiscal spending, defence spends, retail liabilities and retail loans. On continuity of domestic flows: An increased allocation of household savings towards financial assets is structural due to inflation targeting by the central bank. Increased allocation to equities within overall financial savings will be determined by relative valuations of equity versus other competing financial instruments delivering fixed income returns. As and when markets correct, we will see an increase in domestic inflows in equities. If markets continue to rise, we will see more allocation towards balanced funds or fixed income funds.
JINESH GOPANI
On key triggers for the market: The markets may be range-bound in the near term, with a possibility of a two-three per cent correction. Overall macro numbers seem a little weak, valuations are high and the quarterly earnings numbers may disappoint. So barring the liquidity factor, things don’t look that great. In the long term, upcoming state elections may give a clue to the current government’s popularity. The US Fed’s plans to gradually unwind its quantitative easing programme may suck out some of the liquidity sloshing around. So, net-net Indian equities may have to brace for some volatility.
“A correction of 15-20 per cent in stocks which have run-up solely on the hopes of an earnings uptick cannot be ruled out”
On sector picks: A correction of 15-20 per cent in stocks where earnings growth is not visible and which have run-up solely on the hopes of an earnings uptick cannot be ruled out. We are bullish on select private banks, NBFCs (non-banking financial companies), housing finance companies, auto and auto ancillaries. The technology and pharma sectors can be looked into, given the recent slowness in the domestic economy and a possibility of the rupee depreciating further. Value investors can stay on the sidelines or wait till more clarity on implementation of the GST emerges.