thejoyofsaving.comShibani Sircar Kurian, senior EVP and head of equities research at Kotak Mahindra Asset Management Company claims that mid-cap and small-cap values in India are higher than their long-term norms. Despite having solid foundations, she cautioned that volatility may be anticipated in the near future.
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Mid-cap and small-cap values are higher than their long-term norms, according to Shibani Sircar Kurian, senior EVP and the head of equities research at Kotak Mahindra Asset Management Company (AMC). Mid and small-cap prices are substantially above long-term norms when compared to large-cap valuations. She discussed market fundamentals and macroeconomic possibilities in an interview with Mint.
Edited passages:
Even while hazards are present, the market is at an all-time high. Can we declare that the market’s darkest days are behind us?
We think that the trinity of (a) macroeconomic stability, (b) good corporate profitability, and (c) inflows (both domestic and FII) has contributed to India’s outperformance.
Earnings have been doing strongly, but prices have also increased. Values currently exceed fair value.
On a P/E (price-to-earnings ratio) and P/BV (price-to-book value) basis, Nifty is now trading a little bit over long-term average values (one year ahead).
Similar to other developing economies, India continues to trade at a premium, which is now somewhat higher than normal over the long run.
Small- and mid-cap values are higher than they have historically been.
Mid- and small-cap prices are substantially above long-term norms when compared to large-cap valuations.
Because of this, one must be ready for some volatility in the near term despite good fundamentals and the fact that the long-term case for Indian stocks and India’s development story is unaffected.
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How do you anticipate the future course of interest rates? When do you see the Fed lowering interest rates?
We believe that India’s policy rate trajectory has reached its apex, and the RBI is likely to maintain its current stance in the foreseeable future.
While India’s headline CPI inflation is now over the RBI’s tolerance level, it is primarily due to increasing food costs, which can be unpredictable. Already, we’ve seen a significant drop in vegetable costs.
Inflation in the core CPI has been under control. However, the main thing to keep an eye on would be oil prices. We anticipate that the average CPI inflation for FY24 will stay within the RBI’s comfort zone of 4% (+/-2%).
The Federal Reserve’s actions and the trajectory of domestic CPI inflation will probably influence the direction of policy rates in the future. The US Fed’s decision-making process would be heavily reliant on statistics.
It looks doubtful that the US Federal Reserve will lower interest rates in CY23 at this time. According to the Fed Funds Futures, the first-rate drop would probably occur in May or June of 2024.
Which industries do you think will do well over the next two to three years? Can we still wager on stocks of banks? Is this the right moment to invest more in cyclical sectors?
For the Nifty 50 businesses, consensus corporate earnings expectations have so far mainly remained constant for FY24 and FY25, with margin increase acting as the primary driver of profit growth.
While many industries with a worldwide focus continue to experience instability in terms of profit delivery, local industries like banks, industrials, and cars have contributed significantly to the earnings rise.
Given this context, we continue to be optimistic about many domestic-focused companies.
Among the topics we are optimistic about are (a) the resurgence of the capex cycle, (b) the growing penetration of financial services, and (c) taking advantage of movements in the global supply chain.
We are looking for industries and businesses that have solid profit potential, top-notch management, and sound corporate governance procedures yet are trading at fair prices.
In industries like manufacturing, cement, infrastructure, and industrials, we continue to be optimistic.
Auto and auto-related industries, BFSI, and house construction are some of the other industries we are optimistic about.
Regarding global cyclicals like metals, we are still wary.
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Shibani Sircar Kurian