{"id":148469,"date":"2021-12-29T05:11:02","date_gmt":"2021-12-29T05:11:02","guid":{"rendered":"https:\/\/precoinnews.com\/?p=148469"},"modified":"2021-12-29T05:11:02","modified_gmt":"2021-12-29T05:11:02","slug":"room-for-more-correction-in-equities","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/room-for-more-correction-in-equities\/","title":{"rendered":"‘Room for more correction in equities’"},"content":{"rendered":"
‘At current valuations, we believe large-caps offer better downside support.’ The recent pullback in the market can hardly be called a correction and valuations remain high, says Harsha Upadhyaya<\/strong>, chief investment officer – equity, president, Kotak Mahindra Asset Management Company.<\/p>\n In an interview with Chirag Madia<\/strong>, Upadhyaya says investors should use volatility to build a long-term portfolio.<\/p>\n Have valuations turned attractive after the latest pullback?<\/strong><\/p>\n Domestic equities have seen more time correction than value correction in the last few weeks. Earnings estimates for financial year 2021-2022 (FY22<\/em>) and FY23 have remained broadly unchanged, while the market is down only 5 per cent from its peak.<\/p>\n Nifty is currently trading at about 20 times its estimated earnings for FY23, which is higher than the historical long-period average.<\/p>\n Do you think the correction could extend?<\/strong><\/p>\n The recent pullback can hardly be called a correction. Indian equities have been on one of the strongest rallies in history, with large, mid, and small-cap indices generating returns of 64 per cent, 94 per cent, and 104 per cent, respectively, without even a 10 per cent correction from the peak.<\/p>\n If profit booking continues with increasing global concerns, there is room for further correction in Indian equities — either time-wise or value-wise, or both.<\/p>\n Do you expect the selling by foreign investors to continue?<\/strong><\/p>\n We have witnessed net selling by foreign portfolio investors (FPIs<\/em>) of nearly $4.5 billion in the current quarter already.<\/p>\n The impending taper by the US Federal Reserve (US Fed<\/em>) is also perhaps a reason for this action, along with valuation richness and relative outperformance against other emerging markets (EMs<\/em>). This may continue for a while.<\/p>\n What are the biggest risks for the equity markets at this point?<\/strong><\/p>\n The impending US Fed taper programme and strengthening of the dollar leading to possible liquidity pull out from EMs.<\/p>\n Commodity cost pressures impacting corporate profitability at a time when demand is just beginning to stabilise.<\/p>\n Possibility of further disruption in economic activities due another wave of Covid. And, of course, elevated valuations are some risks.<\/p>\n How do you see the relationship between bond yields and market playing out?<\/strong><\/p>\n The US 10-year treasury yields have steadily firmed up to around 1.5 per cent in anticipation of the taper and likely reversal in interest rate cycle.<\/p>\n Higher interest rates will adversely impact corporate profitability and suppress equity valuations.<\/p>\n Do you see more comfort in large-caps or the broader markets?<\/strong><\/p>\n Yes, over the past 18 months or so we have seen mid, small-cap stocks outperforming large-caps by a large margin — about 1.5-2 times.<\/p>\n At current valuations, we believe large-caps offer better downside support. Hence, we are suggesting a small tilt towards them.<\/p>\n
‘Hence, we are suggesting a small tilt towards them.’<\/strong><\/p>\n