Markets are going through a sector churn, as fund managers are picking stocks based on market cues, says Axis Capital's Dr S Subramanian.
The Sensex may have rallied by more than 26% since January, evoking concerns of overvaluation, however, Axis Capital says that there are no fears of a bubble, even if the markets are richly valued. In an interview to ET Now, Dharmesh Mehta, Managing Director and Chief Executive Officer of Axis Capital Ltd said, “ I don’t see any froth in the system. The valuations are expensive, but they are not crazy. Clearly, we are nowhere close to a bubble market.” At such a time, which sectors are fund managers actually focusing? “ There is a sector churn which is happening. People are clearly saying that I’m not wedded to a single sector. Investors are ready to churn, look for cues from the market, and put those cues to work,”Dr S Subramanian MD & Head of Investment Banking, Axis Capital Ltd told ET Now.
Yesterday, Leo Puri of UTI Asset management advised investors to look beyond equities, and emphasized that debt must form an important part of the portfolio. In an interview to BTVi, Leo Puri, Managing Director of UTI Asset Management Company said, “ One should look beyond equities. There are very good opportunities in debt. Financialisation must involve allocation to debt.” Explaining the impact on inflation of return expectations, Leo Puri said, “In the past, in a high inflation regime you believed you could get 20% return on equities, 12% return on bonds. Today, you will get 12% return on equities and maybe 7% on bonds. Globally, return expectations have been aligned lower. In that context, it makes a lot of sense for the households to look at fixed income, and a rebalancing of their overall exposure.”
Last month, Ridham Desai of Morgan Stanley compared the valuations of stocks with respect to bonds. “Bonds are trading at 16 times earnings. The bond cash flow, the coupon that you get, will terminate after 10 years. The dividends you get from equities go way beyond the 10 year time-frame. This implies that equities are actually much cheaper, and that’s because bond yields are very low compared to India’s own history,” he said at the Morningstar conference.