Overall, the market is still at higher valuations, especially in the midcap and smallcap space.
Mutual fund inflows into the market, the primary driver of liquidity all through the bull market in 2017, have moderated for the past few months. A consolidation phase in the market is likely to have made investors marginally pullback their investments. For February, too, fund managers expect some moderation into these platforms.
But, experts such as Harsha Upadhyaya of Kotak Mutual Fund believe that this still cannot be called as a reversal of the healthy trend seen all through last year.
“February flows are a little moderate, but this is not a trend reversal. The month also had lesser number of days. The real trend though will only be known in the next financial year,” Upadhyaya, Chief Investment Officer (Equities) at Kotak Mutual Fund told CNBC-TV18 in an interview.
Additionally, factors such as the banking fraud and the imposition of long term capital gains tax (LTCG) is likely to have played up on investors’ mind, he said. Having said that, trends on the systematic investment plans (SIPs) front continue to remain healthy, he added.
Speaking on likely dividend announcements as we head into the end of financial year, he observed that usually there are a lot more dividend declarations around this time of the year. “We could see that due to the change in taxation methods as well,” he said.
Other factor into play could be the cash flow situation. “Funds are still sitting on 5-6 percent of cash right now,” he told the channel.
Given the size of assets in the MF industry, looking for fresh avenues to invest money is also a challenge. “Asset size increase and elevated valuation challenges are visible and there are no great value picks in the market currently,” he said.
Overall, the market is still at higher valuations, especially in the midcap and smallcap space. “If the market consolidates from hereon, fund managers could build portfolios of their choice.”
Speaking on the situation of PSU banks following the PNB fraud, among others, Upadhyaya said that there could be more pain for corporate facing banks to some extent. “We don’t have CDR, SDR, S4A rejig mechanisms. From September, you will have to recognise some of these which are not resolved. Plus, the scam is also increasing in terms of the size of it… Six months down the line, you probably are not looking at a similar recapitalisation figure as was done in January,” he told the channel.
Overall, he remains underweight on PSU banks and taking a larger bet on private sector banks.In case of information technology, he expects the sector to not outperform benchmark’s earnings and stocks’ growth despite the rise seen in the past few months. He attributes the stock upmove to valuation catch up as well as outperformance of underweight sectors. Once the dust gets settled, other sectors could start outperforming IT space.