Stocks

Rising Motilal Oswal Value Index indicates an overheated market

Suresh P Iyengar Mumbai | Updated on March 22, 2021

Recent rally mainly driven by excess liquidity & hopes of earnings catching up

The 30-day moving average of Motilal Oswal Value Index (MOVI) has touched the 135 level, indicating that the value of the market has turned expensive, and investors should be cautious before taking investment call. The index is calculated taking into account Price to Earnings, Price to Book and Dividend Yield of the stocks that are constituents of the Nifty 50 index. In 2008, when Motilal Oswal Value index touched 140, the equity returns had fallen 51 per cent.

Umang Thaker, Head of Products, Motilal Oswal AMC, said the index is used to take a call on equity allocation of dynamic and balanced funds. The recent rally in market this time around is unique in the sense that it is driven by the excess liquidity and hopes that earnings would catch up soon, he added.

In short, the MOVI index helps to gauge the direction of the market and one should allocate less to the equities if the bands are in the higher range, said Thaker.

Motilal Oswal AMC has already reduced its equity allocation in dynamic and balanced funds to 38 per cent from the peak of about 80 per cent in line with the movement of MOVI index.

Cutting exposure

While the valuation of stocks has moved up sharply, the earnings are yet to come. The Nifty index earnings will be flat this fiscal due to loss of earnings in the first quarter due to Covid induced lockdown, he said.

However, earnings are expected to revive in next two financial years with corporates across sectors improving their operational efficiency and cutting down on cost from their learnings during the Covid pandemic, he said.

The recent fall in equity markets has already pulled down MOVI to 133-mark. Even during the recent phases, when markets turned volatile, MOVI was not only accurate in sensing the market movement but also agile enough to adjust equity allocation, said Thaker.

Gaurav Garg, Head of Research, CapitalVia Global Research said sentiments were dented as there is a major dampener in the form of fast-rising Covid cases, especially in some economically significant cities such as Maharashtra. Restricted economic activity in these regions may impact the optimistic growth projections for FY22, he added

Published on March 22, 2021

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