“For investors with lower allocations — say under 25% — continuing fresh investments via SIP could be an option considering the economic growth that India offers,” Sanghavi says in an interview. Edited excerpts:
The market seems to be non-reactive to any bad news as dips eventually get bought while all the good news looks fully priced in. Would you agree? How expensive is the market now?Krishna Sanghavi: Yes, it’s tough to disagree when we look at equities as an asset class across the majority of global markets. The sentiments for equities are driven by belief in favourable policy action by global central banks, continued fiscal expansion in the US that supports growth & provides liquidity and the uni-directional move that we have seen in markets post Covid.
Indian markets too are trading at higher valuations in line with global trends. Like always, we have some areas of expensive valuations and few where valuations are reasonable. Market cap wise, Large caps are reasonable while mid & small caps are richly valued but supported by investor flows.
Has valuations forced you to keep some powder dry?
Krishna Sanghavi: While valuations are high in some areas, there are reasonable opportunities in few pockets where valuations are reasonable vis a vis the growth opportunities. Large caps as a space is reasonable while mid & small caps are expensive. In asset allocation funds where we have the mandate to hold cash, we have higher cash (debt) while in pure equity funds, we have some cash as well as equities we believe are reasonably valued.Do you think that the market’s fancy for rail and defence stocks could be tested in the rest of FY25?
Krishna Sanghavi: Typically in an environment where expectations of a long capex cycle prevails, stock prices of companies in capital goods are more driven by order flows and less by execution (profitability) in the near term till the capex cycle assumption changes. So we need to monitor fresh orders for rail & defence companies.
Which pockets of the market are you hunting for stocks at this stage? How tough is it to find stocks to buy at reasonable valuations?
Krishna Sanghavi: We are looking at companies where valuations are reasonable, in the context of the underlying growth assumptions. Companies in Sectors like Financials continue to report healthy growth while in Oil & Gas the earnings can get a boost based on the GST Council outcome on gas & petroleum products.
How would you like to summarise the Q1 earnings season? Full marks to IT?
Krishna Sanghavi: The Q1 results have been broadly in line with expectations of a low y-o-y growth. NSE500 companies have reported 7.4% profit growth in Q1. Sectorally, BFSI companies have reported good earnings growth vis a vis non-BFSI companies. Within the non-BFSI companies, the companies ex of commodities have reported healthy growth but the commodities (Oil & Gas, Metal, Cement) have dragged the overall earnings.
What should be the best asset allocation strategy around this time when the market has been consistently hitting record peaks and there are hardly any bears left? Is it best to postpone some of the investments?
Krishna Sanghavi: The asset allocation for investors is driven partly by market valuations but mainly by their prevalent asset allocation. For someone well invested (say 75%+ in equities), allowing existing investments to continue while deferring fresh allocation may be a better idea. While for investors with lower allocations (say under 25%), continuing fresh investments via SIP could be an option considering the economic growth that India offers. For investors who prefer lump sum investments, funds with large cap mandates and/or asset allocation funds could be a better option.
