Even as Sensex and Nifty continue to hit all-time high levels, raising concerns of over-valuation and a potential correction, stock market experts remain unfazed due to factors such as robust corporate earnings, margin expansion and a volume pick-up, leading to improved business dynamics. “The quarterly results for Q1 FY19 have been quite encouraging. The industry wide capacity utilization as per RBI has also moved to around 75% therefore, volume pickup and margin expansions are universal in this earning season,” Alok Singh, CIO, BOI-AXA Investment Managers told FE Online.
“Directionally we are in a rising market scenario as India is at the cusp of earning growth cycle after almost 5 years of stagnated earnings. Therefore the market focus would be to capture this cycle. As a result quality stocks with proven business model, strong brand and distribution reach and high earning visibilities would gain the most at the beginning of the cycle,” Saibal Ghosh, Chief Investment Officer, Aegon Life Insurance told FE Online.
According to experts, while the Sensex and Nifty may be a bit stretched, the broader markets are still reasonably valued. Towards the end of July, equity market saw a divergence where large cap index reached 52-week high while most of the midcap and small cap stocks were near their lows. “This may give an impression of high PE at index level but at broader market valuation is reasonable. It is also not right to evaluate the individual stocks with generalized PE. The valuation has to be look in view of the business dynamics,” Alok Singh explained.
While the recent rupee rout has got a few global investors jittery, top stock market experts point out that in a high inflation country like India, value of 70 is quite fair. “I have never understood why everyone obsesses about the level of the rupee. Most fast growing developing economies tend to have inflation rates which are between 4-10%. As a result their currencies depreciate as the economy goes from being third world to second world to first world. Such a depreciation is not only par for the course, it is actually necessary to keep the developing economy competitive in the global economy,” Saurabh Mukherjea, Founder and CIO, Marcellus Investment Managers told FE Online.
The emerging currencies got impacted by recent dollar appreciation, but rupee has done quite well and I don’t think that there is any contagion effect developing anywhere, Alok Singh said. “I think rupee around 70 against dollar is reasonably placed. We need to appreciate that India is a high inflation country compared to US, so on purchasing power parity basis rupee has to accordingly depreciate somewhat every year,” he explained, adding that oil has already stabilized for the time being and upside risks have abated to a great extent.
So where can investors look to invest? Historical data suggest equities on the long term have outperformed both gold and bonds. I don’t see this return dynamics changing any time soon. “Having said that exposure to every asset class is important for balanced portfolio and the proportion of this allocation has be driven by many thing,” Alok Singh noted.