Daily Voice: US markets may see more corrections amid costly valuations, says Spark's Devang Mehta

Devang Mehta is the Director, Equity Advisory at Spark Private Wealth

"Gravity has to come to the proceedings and some more correction can’t be ruled out in US markets," said Devang Mehta, the Director, Equity Advisory at Spark Private Wealth in an interview to Moneycontrol.

After the huge run up in US markets, some valuation parameters like P/E ratios or equity risk premiums are now expensive, he believes

Back home, according to him, so far equity markets have ignored all positive news flow and have increased its sensitivity to negative news. With inflation near tolerance zone and most of the negatives priced in and major part of earnings downgrades behind, the focus of market participants will shift towards growth, said Devang Mehta who has 23 years of experience in wealth management, investment advisory, equity research, equity sales & portfolio management.

Do you expect the RBI to deliver another 25 bps cut in the repo rate during the April policy meeting, especially after reviewing inflation numbers, growth data, and global cues?

India’s Consumer Price Index inflation eased to 3.6 percent year-on-year (YoY) in February, marking its lowest level since July 2024. The latest inflation figure came in below market expectations of 4 percent and well below January’s 4.3 percent. As RBI embarks upon the rate cut cycle, it can be expected that more cuts are also on the cards, while the timing can be debatable. Cumulatively, there can be 75bps cut in this calendar year. RBI is likely to cut interest rates by 25 bps in April.

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Devang Mehta

Director, Head – Equity Advisory|Spark Capital Private Wealth Management

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Do you think the market focus has shifted to growth rather than inflation now?

Focus of government to boost capex post a slowdown in the last couple of quarters seem evident and also the undertone of the Union Budget to support consumption by way of tax saving are couple of growth-oriented positives. So far markets have ignored all positive news flow and have increased its sensitivity to negative news. With inflation near tolerance zone and most of the negatives priced in and major part of earnings downgrades behind us, the focus of market participants will shift towards growth.

Which sectors are still in risk mode, and could bring further downside in the equity markets?

Any sector with very high global dependence can bring in a bit of uncomfortable tilt to the portfolio as narratives nowadays change by minutes and hours. Apart from this, the focus has to be on checking the fundamentals and carrying out a lot of due diligence on management quality of individual companies. Franchisees where there is high debt, only story without numbers, absence of robust earnings growth, no free or operating cash flows are obvious red flags.

Which pockets are presenting attractive investment opportunities after the equity market turmoil?

India’s investment and capex cycle is likely to benefit sectors like Infra, manufacturing, capital goods, power automation, air solutions. Robust government and bank balance sheets will ensure a strong pipeline of projects in utilities, renewables and manufacturing.

Recovery in consumption trends across rural & Urban India will drive sectors like hotels, hospitality, tourism, luxury and higher end consumption related businesses.

Can the US markets fall another 10% from here, considering the rising recession fears?

After the huge run up in US markets, some valuation parameters like P/E ratios or equity risk premiums are now expensive. Also, the narratives in the new regime along with geopolitical tensions have the potential to infuse added volatility into the markets. Gravity has to come to the proceedings and some more correction can’t be ruled out.

Do you expect further drop in equity mutual fund inflows in coming months, considering the market volatility and global growth concerns?

The escalation in global trade tensions triggered a risk-off, weighing on investor sentiments. Geopolitical tensions, slower domestic earnings growth, relentless profit booking and continued FII outflows didn’t augur well for the markets.

While short-term headwinds have tempered investment flows, domestically, investor confidence remains strong, as indicated by continued inflows for most part of this volatile ride. Investors are adopting a cautious yet steady approach, reassessing their portfolios while maintaining long-term investment commitments.

Its imperative to note that volatility will be the only constant which will time and again urge you to stop investing but the power of patience, persistence and discipline will lead to continual wealth creation over the longer term.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.