The festive spirit can help the consumer discretionary and non-discretionary sectors, says Arvind Sethi, CEO & MD, Tata AMC. In an interview with Jash Kriplani, he says the impact of rupee depreciation would be seen with a lag effect in the next quarter earnings.
Do you expect markets to rally further?
Currently, the markets are quoting around 16 times one-year forward P/E multiple, which is slightly above the long-term average. The upward market movement from current levels will depend on earnings upgrade trajectory after the Q2FY14 numbers, recovery of return on equity (ROEs) for corporate India and FII flows.
Do you expect a strong festive season?
The markets would look forward to a relatively better festival season, at least for consumer discretionary and non-discretionary sectors on the back of a good monsoon. We expect that the equity markets will continue to follow the earnings trajectory.
What is your expectation from GDP growth?
Good monsoons should hopefully revive the growth. But the key to India?s GDP recovery will be the revival of investment cycle, which, we feel, is still six-eight months away. The possibility of political clarity after the general elections next year, coupled with recent decisions taken by Cabinet Committee on Investment, would play a major role. Domestic consumption also needs to pick up.
What are the major triggers for markets?
The triggers are the earnings forecast after the results season, economic data from global markets and the global risk appetite in light of the renewed assumption of delay in tapering by the US Fed to the first quarter of CY14.
What sectors are likely to outperform from here on?
From a long-term investment perspective, we believe sectors like IT, pharma, telecom and media look attractive. Some of the discretionary spending sectors may also benefit from the good monsoon. In our diversified funds category, we are underweight on public sector banks and capital goods sector.
What is your expectation from the Q2 earnings season?
We are in the middle of the earnings session and broadly corporate India?s performance is in line with expectations with a couple of instances of actual expansion of gross margins. However, the impact of rupee depreciation over the last few months could be actually felt in the Q3FY14 numbers because of the lag effect.
Are we seeing any interest from retail investors? Can retail investors look at mid caps at the current levels?
As of now, retail players are keeping away. However, investors should be looking at actual market valuations instead of Sensex or Nifty levels. Large caps seem safer bets in the current environment. However, mid caps can give good returns in 3-5-year period. While there are several investment opportunities available at attractive levels in the mid-cap space, we advise investments only through SIPs.