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."