High valuations a worry still; earnings growth key for markets: Mutual Funds

Nifty rose to an all-time high following BJP's thumping wins in the assembly elections whose results came out last Saturday. However, mutual fund managers are cautiously approaching the market due to high valuations.

The market soared past the 9000 mark today, with the index still up above the psychological figure.

Mutual fund experts also see this victory as an opportunity for Prime Minister Narendra Modi to introduce bolder policies going forward.

“One of the political worries is behind us and this paves the way for constructive reforms,” said Harsha Upadhyaya Chief Investment Officer, Equity, Kotak Mahindra Mutual Fund.

“Market will remain positive for some time but high valuations are a cause of worry,” he added.

Amit Nigam, Head, Equities of Peerless Mutual Fund sees this as a big positive as more liquidity from both foreign and domestic funds will enter the market.

“Population of UP is almost 15-16 percent of total India’s population. Winning from here will help government take more constructive steps,” Nigam said.

Talking about the market Nigam claimed that liquidity has been driving the market and valuations are 25 times price to earnings multiple.

Simultaneously, he also concurred with Upadhyay’s view that the market had not factored in the magnitude of the victory for the BJP in Uttar Pradesh.

Fund houses will continue to closely watch out earnings of companies; however, they do not expect Nifty companies to outperform.

Sunil Singhania, CIO, Equity Investments at Reliance Mutual Fund said, “We have always been positive on the market and are investing actively in the market.”

Kotak Mutual Fund and Reliance Mutual Fund both have been investing in oil & gas sectors while Peerless Mutual Fund has been actively investing in banking and financial and consumer stocks.

Most fund houses are sitting on minimum cash levels of 3-4 percent out of the total investible corpus.