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Market experts sound note of caution on election euphoria

Bharatiya Janata Party (BJP) workers light firecrackers as they celebrate outside BJP headquarters in New Delhi India. Photo: AFPPremium
Bharatiya Janata Party (BJP) workers light firecrackers as they celebrate outside BJP headquarters in New Delhi India. Photo: AFP

  • "From here onwards focus will shift to priorities in public expenditure, and economic reforms,” said Sachin Relekar, CIO (Equities) at LIC Mutual Fund
  • Some fund managers have advocated taking a long term view

Even as the Sensex rallied to touch the 40,000 mark, investment professionals and wealth managers have urged investors to be cautious even while recognizing benefits of a stable government. "Markets were looking for stability, continuity and strong leadership rather than a fractured mandate - this has led to the new high," said B Gopkumar, ED and CEO, Reliance Securities. However other experts sounded a more cautious note.“Valuation wise Nifty at 12,000 trades at around 19x on forward PE basis. Hence we see limited upside potential in the Nifty in the near future. Part of the passive money that has come by way of ETFs in the last three months could move out if Nifty goes above 12,000 level," said Rusmik Oza, Head of Fundamental Research, Kotak Securities Ltd. Experts noted that even on a trailing basis, the markets trade at relatively high valuations. “The Nifty trailing PE is close to 29 and this is not a cheap market. There is a trade war internationally between the US and China," said Ankur Maheshwari, CEO, Equirus Wealth. "The Nifty has risen from the recent lows of 11100 odd after the exit polls. To that extent a large part of the election results is already priced in." said Deepak Jasani, Head, Retail Research, HDFC Securities.

Some fund managers have advocated taking a long term view. “Given the macro economic indicators, earnings reported and management commentary and valuation, it’s prudent to take a longer term view of the investment opportunity. From here onwards focus will shift to priorities in public expenditure, and economic reforms," said Sachin Relekar, Chief Investment Officer (Equities) at LIC Mutual Fund. Experts also identified market segments that hold potential even in relatively expensive scenarios. “We see more value and upside in the Mid and Small Cap space hereon. With NDA coming back into power we can expect local investors to take comfort in the Mid and Small cap space with a longer 2-3 year horizon and inflows could resume in them," said Oza. “Mid and small caps tend to rally in a bullish phase and investors should have some exposure to them," said Maheshwari.

Fund Managers have also identified areas of policy reforms that are needed to drive investor returns. “Not fixing the banking sector NPA woes early on perhaps was a big miss. Aggressive recapitalization of banks should have been done early on to ensure smooth credit flow. We lost a lot of time in multitude of regulations before eventually drafting the Insolvency and Bankruptcy Code Law. Even under IBC, progress has been patchy," said Anand Radhakrishnan, Chief Investment Officer (Equities), Franklin Templeton Asset Management (India) Pvt. Ltd. He also pointed to the housing sector as the key area for policy change in the next 5 years. “If we have to single out one area that requires a big thrust and will have wider impact on the Economy, it would be Housing sector. The government should give attractive tax benefits for home buyers and encourage revival of Housing sector demand at the earliest."

ABOUT THE AUTHOR

Neil Borate

Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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