V Srivatsa of UTI MF said market is underestimating the impact of GST on the near-term financials of most of the companies on the manufacturing side.
There could be earnings surprises on the downside for manufacturing companies at least for one quarter or even two.
However, the market is flooded with inflows from domestic institutions which point out to a long-term trajectory. So market may consolidate while trying to digest the impact of GST in th short-term, and may not move up much. However, it may also not see the falls we witnessed 5-10 years back on back of this kind of event.
So, the risk to the market remains the impact of GST on earnings and the risk-off global rally, where FIIs may withdraw money but the impact of that would be much less than it used to be five years back, said Srivatsa.
Talking stock/sector specific, he said the fund house is and has been positive on pharma, and that trade has well played out in the last one year. So, they have added more during the recent corrections.
From a valuation perspective too, the pharma sector has bottomed out and so one needs to look at it on a long-term basis of 2-3 years. There is expectation that these companies will report earnings growth and return on capital that they reported in last couple of years. Therefore, one can even enter at current levels for reasonable upside in the next 3-5 years, said Srivatsa.
On the banking side, he said the house is positive on the private sector corporate banks. He said, the NPA recognition pain for the sector could be there for next 12-18 months or so.
However, the PSU banks have seen huge rerating, which tells you that valuations have factored in some amount of NPA resolution, he said
IT sector is a contra buy for the fund house because of its cheap valuations. According to him, things may not be as bad as the market is projecting although there is pressure on growth, cost and margins, but current valuations are factoring in a large part of it. Therefore, IT remains a decent overweight across their funds, said Srivatsa.For entire discussion, watch video