The slowdown in the equity inflows into the mutual funds is not surprising as Indian investors are putting their learnings of the last 10-15 years into practice, says Sanjay Dongre, EVP and senior fund manager, equity of UTI Mutual Fund.
“Today, when we look at the market valuations, the levels are closer to an all-time high. If people are getting a little fearful when the market is closer to an all-time high, I am not surprised. I am sure when the market becomes volatile, when the market valuations decline, the Indian investors will come and find the higher allocations to the equity they will be doing,” he said.
“The market is quoting at about 18.5 times one year forward earnings while the last five-year average is about 16.8 times, the 10-year average is 15.6 times. So clearly, the market is quoting at above-average valuations. When you look at the market from price to book multiple, the market is quoting at about 2.62 times one year forward while the last 10-year average is 2.42. So clearly, the market is quoting at a higher valuation. So to that extent, some investors might get jittery,” he observed.
The market is not looking at the base-case scenario of gross domestic product (GDP) growth less than 5 percent. Going forward, the market is expecting some kind of recovery in the GDP growth as far as the economy is concerned.
According to him, this year’s Nifty earnings could be in the range of 12-15 percent. “Next year’s earnings are likely to be in excess of 20 percent. I will be looking to go overweight on the sectors where the earnings growth is higher and go neutral or underweight positions on the sectors where the earnings growth is likely to be lower than the market earnings growth over the next two years. So, some of the sectors like IT, auto and metals are the sectors where the two-year compounded annual growth rate earnings are likely to be in the single-digit and therefore these are the sectors where I would like to have a neutral or underweight position. The other domestic-oriented sectors such as financials, cement, capital goods, engineering and construction are likely to witness better earnings growth,” Dongre added.