For sustained market rally, earnings must pick up: Harsha Upadhyaya of Kotak AMC

By: | Published: November 2, 2017 4:48 PM

As the Sensex and Nifty continue to all-time high levels, buoyed by the recent boost in India’s ease of doing business rankings and also the PSU bank recapitalisation push, Harsha Upadhyaya of Kotak AMC says that the rally is not backed by earnings growth.

Equity Investment, stock market, stock investing, buy shares, keys to become a successful investor, build profitable portfolio, successful equity portfolio managementEarnings will have to pick up to sustain market rally, says Harsha Upadhyaya of Kotak AMC. (Image: Reuters)

As the Sensex and Nifty continue to all-time high levels, buoyed by the recent boost in India’s ease of doing business rankings and also the PSU bank recapitalisation push, Harsha Upadhyaya of Kotak AMC says that the rally is not backed by earnings growth. In an interview to BTVi, Harsha Upadhyaya,  Head – Equity investments for Kotak Mutual Fund, said that strong earnings will be necessary to sustain the rally. Further, the market expert said that earnings growth will be in the range of 8-12% going forward.

Yesterday, Nilesh Shah of Kotak AMC had pointed out that while the indices maybe trading at all-time high levels, the valuations haven’t peaked. “Indices are at all-time high, valuations are not at all-time high. We can’t compare the bull market valuation of 1991, 2000 and 2008. In 2008, profit as a percentage of GDP was 7.1%, in 2017, it is 3%. When I compare valuations, in 2008, it was peak profitability cycle valuation. Today, we have a depressed profitability valuation. There’s no guarantee that 3% GDP will move towards 7% valuation, but certainly it will move towards 5% level,” Nilesh Shah, Managing Director of Kotak AMC said in an interview to CNBC TV18.

Explaining how profit as a percentage of GDP would pick up, Nilesh Shah said, “If real interest rates start stabilizing to a little lower level and the capacity utilisation of India Inc, which has declined from 80% to 73%, starts moving towards 78 and eventually 80%. This combination of lower interest rates and higher capacity utilization could result in improvement in profitability and take care of the valuation.”

As investors may find it difficult to find value buys at such levels,  N Jayakumar of Prime Securities, said that index investing may provide healthy returns. In an interview to ET Now, N Jayakumar, MD of Prime Securities said, “Last time we talked about how indexed investing is not going to hurt people. I think index investing for a lot of people has been beneficial. You may not have got a three bagger, but you’ve got a pretty healthy growth. Portfolio’s are not made of three baggers alone.”

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition