Equity market not frustrating, signals ‘Value Migration’: Utpal Sheth

Equity market not frustrating, signals ‘Value Migration’: Utpal Sheth

“The market is signaling a value migration, not frustration. We should separate the noise from the signal. The signal is that we are genuinely struggling with corporate earnings growth,” said Utpal Sheth, Chairman of TRUST Group, at Network 18's 'Reforms Reloaded' event.

Indian equity markets might have disappointed watchers and participants with minimal reaction to the September 19's revolutionary GST reform, unlike the September 2019 corporate tax cut - which had triggered a 9% rally in Nifty over two days. But Sheth explained that unlike a direct corporate tax cut, which immediately boosts profitability and valuations, an indirect tax cut like the GST reduction takes longer to reflect in corporate earnings.

“When you have an indirect tax cut, it takes time to play out and impact corporate profitability,” he said.

To this, Nilesh Shah, MD and CEO of Kotak Mahindra Asset Management, added, “In some sectors, there is an actual loss of earning rather than an increase, like insurance,” as companies remain unsure if input tax credits will fully materialise. Atul Suri of Marathon Trends therefore expects this to take full effect and reflect in earnings only in a span of 12 to 18 months.

Meanwhile, Sheth also emphasised that the current environment is a test for investors to identify where capital is migrating.

“The 2020 move saw value stocks and small-cap stocks outperform because there was a catalyst. Now, the market is signaling a value migration — we all need to figure out what it is,” he said.