Udayan Mukherjee, consulting editor at CNBC-TV18, spoke about the current trends in equities market and shared outlook.
“It is not a bit of a problem, I think it is more than a bit of a problem for emerging markets right now. This steady exodus of foreign money or global money, dollar money from emerging markets including India will probably continue through till the end of the year. So we have a tricky Q4 coming up now – October, November, December – the liquidity situation for emerging markets is not great compounded by the macro problems in many of those economies including ours. So the best case that you can think of right now is that you won’t fall too much and the domestic money does not dry up too much. I think that is the most important things technically for the market right now,” he said.
“We have a bit of a technical imbalance brewing out here and the macro news is not great. So the best case is the market forms a bit of a trading range - I don’t know what that range could be, maybe it is 10,800 to 11,800 a thousand point Nifty range - and try and work with that in Q4 of this year,” Mukherjee added.
With regards to the information technology and pharma stocks, Mukherjee said, “IT has been a rank outperformer, pharma has done quite well and the market swift to figure out, what will get hurt by the rising yields. It is not just the yields, wholesale funding of course will become a big challenge but interest rates will also start rising because the kind of tepid deposit growth we are seeing in the banking system now, I think it is only inevitable that rates will also harden. That is a pressure for earnings. So I have been saying consistently over the last few months that we will not get this 25 percent earnings growth that analysts are shouting from the rooftops about, it always appeared to me that we will get closer to 15 percent and that was not even factoring in an upward pressure on interest rates and now that yields have started to move up and interest rates will follow, I think it is going to be difficult to get more than 15 percent earnings growth. So we are getting some earnings growth".
Talking about the earnings trajectory, Mukherjee said, "It is not like there is no recovery in earnings but we will probably get to that 14-15 percent kind of growth and not that 25 percent which was required to support the market at 19 and 20 P/E multiple and I think the because of the yield hardening and the tempering of the earnings expectations, what you will probably go to want to see in Q4 is a P/E multiple compression. How severe that compression turns out to be will depend on how the emerging market story plays out globally."
When asked whether people should exit systematic investment plans (SIPs), he said, “I don’t think we have arrived at a point of panic where people should stop their SIPs because the nature of the beast is such that things average out over a period of time. So SIP is a habit, once you get out, you are basically back into the timing game which most retail investors cannot do. So I think for an SIP habit, we will have to see more evidence of greater damage to conclude that SIP should be stopped but what is happening right now is what we like to call the smart or the professional money, that has started to walk out over the last one month or so which is why the lumpy inflows into equity mutual funds are no longer there, whether we will see large-scale redemptions from these professional investors, that we will have to wait and see because the net number in August was lower but was still more than Rs 5,000 crore. So SIPs are continuing."
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