There are many triggers for the market’s recent highs but beware of manipulation in a few mid-cap pockets, says Lalit Nambiar, Executive Vice-President, Fund Manager (Equities), UTI Mutual Fund, in this interview with BusinessLine . Excerpts:
With the markets at a new high and the Sensex PE above 22 times, is valuation a concern for equities to push higher from here?
Market is above the averages on valuations but that said it can be explained to some extent by the anticipation of being at the cusp of a cyclical upturn, alternative asset classes such as gold, debt and realty looking less attractive due to systemic and regulatory issues and the government delivering slowly but surely on reforms.
While market experts have been warning of mid-cap stock valuations getting pricey, the entire mid- and small-cap segment hasn’t witnessed any material correction in recent months. So, should investors be cautious with this segment or assume the worst is behind?
The first thing about looking at any market-cap category is that the category may span varied types of businesses in terms of risk, cash flows and return ratios. So, clubbing these stocks under one m-cap category has its own risks. If you are willing to overlook that, we see many attractive stories which are gathering momentum.
There is only one very discordant note which I would like to highlight in this space. There are pockets of stock manipulation in some names where there is a large concentration of holdings. The potential impact of any negative news on investor wealth is high.
Third quarter results from India Inc seemed to show an earnings rebound despite the impact of demonetisation. So, is the earnings catch-up that everyone has been waiting for, finally happening?
The anti-profiteering clause in GST implementation may see companies treading cautiously on profit growth. With that caveat, we should see some pick-up in earnings. But it is unlikely to be the elusive inflection point which is being sought by the market.
The performance of purely quality-oriented stocks and mutual funds, has flagged in the last two years and ‘value’ oriented-funds have come back. We see this in the sharp rebound from PSU banks, beaten-down commodity stocks and public sector units. Is this shift in market preferences a sustainable trend?
There was a long period when cyclicals were ignored and valuations in some so-called ‘quality’ stocks had reached unprecedented levels. My own sense is that there is a cyclical recovery around the corner. But there is a risk of being too early in some of these names.
After being top performers over a 10-year time span, UTI Opportunities and UTI Midcap Fund have slipped to the fourth quartile in the large- and mid-cap categories in the last one year. Why is this and what is the turnaround strategy?
Allow me to focus on the fund that I manage. In the Midcap fund, we may have played a bit early in a few promising names which are yet to deliver, but where we are quite confident regarding the future. Also, we follow a highly diversified strategy in this fund with over 80-85 stocks, in order to deliver consistent returns.
Market studies show that portfolio returns may beat index returns but fund investors’ returns can be much lower simply based on when they enter and exit a fund. Therefore, consistency of return is an extremely important but much ignored attribute.
We would like to see that the returns experienced by an investor investing in January 2010 and exiting in January 2017 are more or less similar to a person investing in February 2010 and exiting in February 2017. Insulating the portfolio from increased market volatility, which is now regarded as the new normal, is an important area of focus.
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